ESSAYS ON CORPORATE GOVERNANCE

Abstract

My doctoral dissertation is structured into three comprehensive chapters that converge upon the central theme of corporate governance. In the first chapter, we investigate CEO narcissism’s effect on firms’ debt costs. Although this managerial personality trait benefits shareholders, we find that firms face higher debt financing costs as CEO narcissism increases. The results indicate that grandiose narcissistic CEOs further heighten debt costs relative to other forms of narcissism. Using a quasi-natural experiment focusing on a sudden increase in firms’ net income, our analyses indicate that bondholders demand higher yields from firms with narcissistic CEOs than non-narcissists, suggesting a causal relation between narcissism and bond yields. Overall, the results indicate that firms with narcissistic CEOs bear a higher debt cost than firms with non-narcissistic CEOs, providing evidence that managerial narcissism exacerbates the shareholder-bondholder agency conflict. In the second chapter, we examine whether narcissistic CEOs engage more in opportunistic insider trading relative to other types of CEOs. By using a numeric measure of CEO narcissism based on textual analysis, we find that CEOs with a higher level of narcissism engage in opportunistic insider trading more intensely, which is consistent with the exploitative personal benefit hypothesis. We employ numerous approaches to alleviate endogeneity concerns, including the coarsen exact matching, instrumental variable, falsification test, and Heckman’s two-step sample selection model. The cross-sectional analysis shows that the effects of CEO narcissism on opportunistic insider trading are more pronounced for CEOs with less legal knowledge and weaker monitoring pressure. Taken together, our findings highlight narcissism as an important personality trait that drives a CEO’s opportunistic insider trading behavior. In the third chapter, we examine the effect of board gender diversity policies on firm value. First, we confirm the previously documented negative investor reaction to the 2018 CA gender quota requirement (SB 826). Additionally, we find significantly negative cumulative abnormal returns (CARs) following the passage of the 2020 CA board diversity mandate (AB 979) and the 2020 Nasdaq board diversity disclosure rules and significantly positive CARs when AB 979 and SB 826 were legally overturned in April and May of 2022. Second, we examine CARs to director appointments from 2003-2021. While CARs to female director appointments are always economically smaller, the difference in CARs between male and female appointments is not statistically significant. Moreover, the difference in CARs remains insignificant even after #MeToo, when arguably, firms faced greater pressure to appoint female directors. Finally, we examine the qualifications of appointed directors. We find that male directors have more work experience and more CEO experience relative to female directors, but this differential in qualifications across male and female directors does not change significantly in the post #MeToo period. Overall, the results are consistent with the idea that while investors react less positively to female director appointments and negatively to laws that increase or encourage board diversity, the negative reaction does not appear to be driven by a lower supply of qualified female directors.