Three Essays on Corporate Inequality

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In this dissertation, I explore the causes and consequences of inequality in U.S. corporations. Each of the chapters examines a different facet of inequality: the first and second chapters are focused on the pay inequality among CEOs and rank-and-file workers, while the third chapter highlights the racial inequality in corporate board director appointments.In Chapter 1, “Do CEOs Benefit from Employee Pay Raises? Evidence from a Federal Minimum Wage Law”, I analyze the spillover effect of employee pay on CEO pay using a U.S. federal minimum wage hike as a natural experiment. I show that, after an about 40% hike in the federal minimum wage, a 10% increase in employment share in states bound by federal minimum wage leads to an about 7% increase in CEO total pay for firms in minimum-wage-sensitive industries relative to other industries. The CEO pay increase is more pronounced for smaller firms, firms with lower CEO-employee pay ratios, and younger CEOs. I argue that the results are consistent with CEOs demanding a pay increase following an exogenous employee pay raise. In Chapter 2, “Within-Firm Pay Disparity and Firm Performance: Evidence from a Federal Minimum Wage Law”, I analyze the effect of the CEO-employee pay disparity on firm performance using a U.S. federal minimum wage hike as a natural experiment. I extend and build upon the setup of Chapter 1 and show that firms that disclose CEO compensation levels after/before the announcement of the hike (treated/control firms) have higher/lower CEO pay levels in the following year. This evidence is consistent with control firms’ inability to incorporate new information about the hike into the CEO pay setting, leading to control firms having exogenously smaller CEO-worker pay gaps than treated firms. I find that following the hike, a 10% increase in employment share in states bound by federal minimum wage leads to a 1.2% drop in ROA for control firms in minimum-wage-sensitive industries vs. other industries. An event study discloses positive but insignificant abnormal stock returns of treated vs. control firms in minimum-wage-sensitive industries vs. other industries on the announcement date of the federal minimum hike, implying that the markets anticipated the hike. To summarize, I provide novel causal evidence that smaller CEO-worker pay gaps in U.S. public firms are detrimental to firm performance. In Chapter 3 (joint with Vicki L. Bogan and Scott E. Yonker), “What Drives Racial Diversity on U.S. Corporate Boards?”, we investigate the trends and drivers of racial diversity on U.S. corporate boards. We start by showing that cross-sectional regressions indicate that firm size, growth opportunities, and the racial compositions of boards are key predictors of minority director appointments. Through 2019, firms with lower board racial diversity were less likely to appoint minority directors. Interestingly, in 2020, this relationship reversed, coinciding with the commencement of the racial justice movement as well as diversity initiatives implemented by the state of California. Our analysis reveals that the racial justice movement was the primary cause of the changes in minority director appointment behavior. Conservative estimates imply it led to a 125% increase in the number of black director appointments but had no effect on appointments of other minority groups. We document that newly appointed black directors have similar qualifications to those appointed prior to the racial justice movement. In contrast, the California diversity mandate has primarily benefited racial groups that are not traditionally underrepresented and has suppressed appointments of black directors. Our analysis is suggestive of search frictions, inattention, and racial bias being important potential mechanisms causing the persistent lack of board racial diversity that we document.

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232 pages


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board diversity; employee pay; executive compensation; fairness; minimum wages; racial bias


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Yonker, Scott

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Kim, Hyunseob
Campello, Murillo
Dillenburg Scur, Daniela
Tsoutsoura, Margarita

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Ph. D., Management

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Doctor of Philosophy

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dissertation or thesis

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