Three essays on the market response to idiosyncratic individual incentives.

다국어 초록 (Multilingual Abstract)

This dissertation examines how the market attaches value to idiosyncratic incentives of individual market participants. In my first essay, I focus on CEO incentives. Withdrawn acquisition bids provide a unique mechanism to identify CEOs who restrain from extracting private benefits. I show that the market extracts valuable information about CEOs who exhibit restraint and withdraw from a deal when it becomes too expensive. Using a hand-collected sample of 530 withdrawn acquisition bids, I find that firms that cancel deals rather than raise their offer, experience higher withdrawal returns than a control group of firms that withdraw for other reasons. Moreover, restraint information is more valuable to the capital market when CEO quality is uncertain and when monitoring is poor. The labor market also utilizes information on restraint. CEOs who exercise restraint are less likely to experience a turnover event and more likely to experience improved career prospects than a control group of CEOs. My findings indicate that both the capital market and the labor market attach a high value to CEOs who restrain from private incentives.
In my second essay, I focus on the incentives of research analysts. We use an exogenous shock to analyst compensation structure to identify research that is likely motivated by private incentives. The 2003 Global Settlement (GS) prohibits analyst compensation from being linked to investment banking business; we argue that firms that lost coverage following the GS were likely covered as a result of analyst private incentives. We use this identification strategy to show that the market (1) recognizes and adjusts for analysts' conflicts of interest and (2) places little value on research motivated by analysts' private incentives.
My third essay considers the incentives of traders to focus on round numbers as cognitive reference points for value. Using a sample of 100 million stock transactions, we find excess buying (selling) by traders at all price points one penny below (above) round numbers. Further, the size of the buy-sell imbalance is monotonic in the roundness of the adjacent round number. We show that this excess trading around round numbers yields losses approaching $1 billion per year.