Essays on Corporate Misconduct

This thesis aims to contribute to the literature on corporate misconduct by examining the influence of CEO’s relative performance evaluation (RPE) contracts, the adoption of majority voting rules in director elections, and the adoption of pay transparency laws. It provides evidence from three key aspects. The first chapter analyses the incentive effect of a tournament-like competition in an RPE contract, and I find that the tournament incentives motivate interim losing firms to improve short-term performance by committing more violations. In the second empirical design, I introduce the staggered adoption of Majority Voting Rules (MVR) in director elections, and I find that wage theft violations significantly increase after the adoption of the new voting rules, suggesting that the career concern raised from the increase of shareholder control power motivates executives to make long-term harmful decisions for short-term benefits. In the third empirical design, I shift the focus from managerial incentives to the role of employees and introduce the state-level adoption of pay transparency laws (PTL) to examine the change in employee protection. I find that wage theft violations significantly increase after the PTL is adopted, and this change is likely due to the protection alleviating the fear of retaliation and encouraging employee whistleblowing.

By investigating how incentives from the management and employees shape a firm’s decisions in committing violations, this thesis generates insights into understanding the drivers of corporate misconduct from a dynamic view of agency problems, and it suggests that future regulations could balance governance reforms to avoid unintentionally encouraging opportunistic behaviours.