Two Essays on Corporate Governance

Abstract

The dissertation focuses on corporate governance, which is shown in two chapters.

In chapter 1, we investigate how a firm's expected default risk moderates the impact of weakened corporate governance on firm operating performance across varying levels of product market competition. This study uses the setting of the passage of business combination (BC) laws, which weaken corporate governance and increase the opportunity for managerial slack for firms in non-competitive industries, to show that firm's financial health (proxied by expected default risk, EDF) is a critical contingent factor for such effect. We find that although firms in non-competitive industries experience a significant drop in operating performance after the laws' passage, such effect is insignificant for firms in non-competitive industries but faced with high default risk. The imminent threat of bankruptcy acts as an overriding disciplining mechanism for managers. Competition significantly moderates the impact of weakened governance for firms not facing immediate survival threats. Our results are robust to concerns regarding the use of BC laws to measure exogenous changes in takeover protection. Our findings complement the "quiet-life" hypothesis. Managers only enjoy quite life when the threat of bankruptcy is not strong enough to affect their effort on firm performance. Managers of high-EDF firms cannot afford to let costs escalate or performance slide, irrespective of BC laws or industry concentration, because the consequence is default.

In chapter 2, we employs Say-on-Pay (SOP) voting data to investigate whether CEO power affect performance sensitivity in shareholder voting. Firm performance is a paramount concern for shareholders in SOP votes. While CEO power can be leveraged for self-serving purposes, it may also reflect past success and superior managerial ability. Our findings indicate that CEO power magnifies performance sensitivity in SOP voting. This amplification effect is particularly pronounced in firms characterized by low institutional ownership, low board independence, and those identified as innovative. We further contend that this heightened support in high-performing contexts with powerful CEOs does not necessarily stem from their superior managerial ability. Instead, the tolerance for good performance with powerful CEOs appears to be suggested by Institutional Shareholder Services (ISS) recommendations, which heavily weigh firm performance in their voting guidelines.

Date of Award	10 Feb 2026
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Shan ZHAO (Supervisor) & Qianqian HUANG (Supervisor)