Essays in Banking and Corporate Finance.

Abstract

This dissertation consists of three essays in banking and corporate finance. The first essay examines how changes in the composition of the human capital of the workforce impact the CEO. Over the last fifty years, technological change has caused the tasks workers perform to shift from routine to nonroutine work. As a result, the role of the CEO has evolved to become more focused on developing the human capital within the firm. I estimate that these changes in the role of the CEO caused CEO pay to double over the last thirty years, explaining roughly one-third of the aggregate increase in CEO pay. The second essay, co-authored with Carlos Arteta, Mark Carey, and Ricardo Correa, empirically examines financial institutions' motivations to take systematic bad-tail risk in the form of sponsorship of credit-arbitrage asset-backed commercial paper vehicles. A run on debt issued by such vehicles played a key role in the crisis that began in the summer of 2007. We find evidence consistent with important roles for both owner-manager agency problems and government-induced distortions, especially government control or ownership of banks. The final essay explores the impact of capital regulation on bank risk taking. I utilize a triple difference specification to identify the effect of FIN 46--which increased regulatory capital requirements for U.S. banks sponsoring off-balance sheet vehicles--on systematic risk exposure. I find that after the regulation, banks' exposure to vehicles with high systematic risk increases relative to vehicles with low risk and relative to non-U.S. banks which are not affected by the regulation. These results suggest that capital regulation has the perverse effect of concentrating systematic risk, potentially increasing the systemic risk of the financial system.