Abstract

Corporate governance is a heavily researched area in the finance literature, with previous studies exploring a multitude of variables that describe a firm’s board structure, management, compensation, etc., and how they affect corporate decisions, firm performance, and various other aspects of corporate life. Corporate governance has important implications for nearly all business entities, yet many research questions within the field still remain unaddressed.
In the first part of my thesis, I explore the relation between corporate governance practices and shareholder litigation. At the same time, I explore whether firms improve any shortcomings in their governance structure and/or governance practices post-litigation. We find evidence that variables that describe a firm’s corporate governance, the compensation of its CEO, as well as the CEO’s characteristics have a significant influence on the firm’s litigation risk. Our results further show that, after a lawsuit, sued firms tend to improve their corporate governance and the proportion of their independent directors. In summary, our results provide important insights into the role of ex-ante active monitoring (via the board of directors) versus ex-post passive monitoring (via shareholder litigation), and how litigation as a passive monitoring device can cause firms to improve their active monitoring.
In another research, I choose the aviation industry and examine the potential effects corporate governance policies may have on the safety record of that industry. Pilot errors and mechanical failures, which are responsible for 75% of all accidents, are, to some extent, preventable because they relate to the way an airline company is managed. My findings reveal that airline safety is significantly affected by a series of firm-level characteristics that describe an airline’s governance as well as its financial well-being. In addition, I find that airline safety is affected by a variety of country-level factors that characterize the legal, institutional, and economic environment of a given country, as well as its air transport infrastructure. The results of this study have important policy implications for both the airline industry and regulators. To allocate resources more efficiently, regulators may find it beneficial to focus their supervision on airlines with poor governance practices as well as airlines that are in financial distress.