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There is some theoretical [Miller (1976)] and empirical [Diether, Molloy, and Scherbina (2002)] evidence in the literature that when investors disagree about he value of a stock the market price is likely to reflect the more optimistic view for less liquid stocks where short selling may be more costly. In the third chapter I show that this is true in the case of IPOs as well. I conjecture that issues that are relatively less liquid will exhibit more non-fundamental volatility. I measure non-fundamental volatility using cross-sectional and time-series regression methods suggested by Amihud and Mendelson (1987) and Damadaran (1993). I find that stocks with more non-fundamental volatility under-perform otherwise similar stocks in the long run (one to three years).
In the second essay, it is argued that the time following an amendment in which demand is revealed has a cost. So, why do some firms take longer than others to go public following the amendment? It is hypothesized that the delay to the offer results from overestimation of demand and risk. As a result, underpricing predicted at the amendment is not indicative of the final level of underpricing. The firm and its investors bear the costs of the delay. This study highlights the distinction between partial and full information and the costs associated with SEC requirements.
In this dissertation I examine the behavior of sophisticated investors in new equity issues.
Compensation contracts have become ever more complex and individualized, particularly in the executive compensation domain, where increasingly diverse stakeholder demands and governance requirements have led to the inclusion of more and increasingly interrelated components into compensation contracts. Even the compensation of lower-level employees has become complex as firms individualize employee compensation and use many different rewards simultaneously. Research has examined elements of compensation in isolation but has attempted to avoid the complexities of compensation. This dissertation examines the consequences of compensation complexity and compensation design dispersion and contributes to a better understanding of compensation and its consequences for firms and employees. The first study examines how the complexity of executive compensation contracts affects firm performance. It finds that CEO compensation complexity negatively affects accounting, market, and ESG (i.e., environmental, social, and governance) metrics of firm performance and explores mechanisms that help explain the relationships. The second study examines the effect of compensation design dispersion within top management teams and its impact on executive turnover. The results show that compensation design dispersion affects executive turnover, both directly and in interaction with relative pay level. The third study addresses the role of compensation design dispersion in the development of procedural justice perceptions. Using two experiments, this study shows that compensation design dispersion causes lower procedural justice perceptions, which appears to be less problematic for participants with relatively easier to understand contracts. In summary, this dissertation provides a nuanced overview of complex compensation design and compensation design dispersion. The findings contribute to a better understanding of the effectiveness of compensation as an incentive and sorting tool for organizations, and of the implications of compensation design for the functioning of teams.