Date of Award

8-30-2022

Document Type

Open Access Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Business Administration

First Advisor

Lucia Silva-Gao

Second Advisor

Atreya Chakraborty

Third Advisor

Shahbaz Sheikh

Abstract

This dissertation includes three related essays investigating corporate governance structures, specifically, how firms leverage corporate social responsibility (CSR) related initiatives (providing CSR-linked compensation and establishing a sustainability committee) and the relevant corporate outcomes. This dissertation also examines the relationship between executive compensation and one dimension of CSR, diversity, in boardrooms. The first essay examines the relationship between CSR-linked executive compensation and corporate risk. Results from OLS and firm fixed effects regressions show that CSR-linked compensation reduces both total and idiosyncratic risks. Results also indicate that CSR-linked compensation reduces risk only when risk is well above the optimal level and has no significant effect when risk is well below the optimal level. Additional tests show that CSR-linked compensation mitigates the positive effect of option-based compensation on risk and this mitigation effect is significant only when risk is well above the optimal level. Overall, these results show that CSR-linked compensation not only increases the CSR orientation of a firm but also helps in managing corporate risk levels. In the second essay, I examine the effect of board diversity as a corporate governance mechanism on CEO compensation structure, which could be more important than the level of CEO pay because it better aligns CEO and shareholder interests. Using a multidimensional measure of board diversity that captures both demographic and cognitive factors, I find that board diversity promotes the performance-based compensation ratio in CEO compensation packages. In addition, I find a substitute mechanism of board diversity in corporate governance, with a weaker but still significant effect of board diversity on performance pay when the firm is well-governed. The third essay looks at the corporate governance practice of boards establishing sustainability committees and investigates which committee-level attributes are helpful to promote sustainability performance by looking at committee member characteristics. We find that sustainability committees are more effective when there is a larger proportion of female members, members who have an output-oriented functional background, newly hired members because of their expertise, and when members are less occupied by board seats in other companies. Overall, we provide empirical evidence of the effectiveness of sustainability committees.

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