Essays in Applied Corporate Economy

This work includes the results of broad research carried out during the PhD course in Economics and Political Economy at the University of Genoa. The aim of my thesis is to apply empirical methods to investigate corporate finance issues. During these years, I have collected a unique dataset on the compensation and tenure of board members in Italy. In this dataset, each board member is represented by a row containing his or her generalities, role, tenure, and compensation, divided into more components: fixed salary, committee fee, benefits, bonus, equity instruments, and severance pay. This dataset is the starting point for my empirical research. The first chapter investigates the hardly discussed relationship between the two functions of accounting information in financial reporting: stewardship’ and valuation’s usefulness. This study explores the current debate on the expandability of the role of the stewardship function within 'decision usefulness' as the purpose of financial reporting. The main contribution of the chapter to the literature is the discovery of the existence of a positive relationship between the two usefulness of accounting information for 'top' board members, while no relationship was found for 'non-top' board members. The second and third chapters examine the relationship between firm performance and executive pay. In particular, the second chapter addresses this analysis using the 'tournament' model. It considers firm performance as a function of compensation and other firm characteristics. While the third chapter adopts the 'agency theory' model and sets up the reverse models by regressing compensation on firm performance. Using a wide range of empirical models, the second and third chapters take an innovative approach to studying the relationship between firm performance, executive pay, and other corporate governance indicators. For the first time, this relationship (in both causal directions) is analyzed along two unexplored dimensions: individual directors (rather than the CEO or the board as a whole) and individual components of total compensation (rather than total or cash compensation). This contributes to the literature by highlighting previously unconsidered variables, such as the different characteristics of different board members and their impact on the performance-pay’s and pay-performance’s relationships. Both chapters also contribute to an in-depth study of the sensitivity of pay to performance (and vice versa) in a context characterized by a corporate governance model that is very different from the ones typically studied in the literature.