Essays in Economic and Corporate Finance
This dissertation consists of two distinct chapters. In the first chapter, I study the outsourcing of corporate governance to proxy advisory firms, which are third-party advisors that help institutional investors decide which way to vote on corporate governance issues. Advising equity assets in trillions of dollars, these advisors play a powerful role in shaping corporate governance. First, I model how conflicts of interest arise when a proxy advisor provides advisory services to investors as well as consulting services to corporations on the same governance issues. The advisor can issue biased voting recommendations when expected reputation costs are low, compared to consulting fees. I then study how increased competition can alleviate these conflicts. Using a unique dataset on voting recommendations, I show that the entry of a new advisory firm reduces favorable recommendations for management proposals by the incumbent advisor. This is consistent with our theory as the incumbent is subject to conflicts of interest by serving both investors and corporations. These results inform the policy debate on whether and how to regulate the proxy advisory industry. The second chapter of the thesis assesses the value of access to public transportation in Beijing, a megacity suffering from severe traffic congestion. Existing urban economic theory states that traffic congestion is welfare reducing. In practice, policymakers in congested cities invest heavily in public transit systems to reduce transportation costs. However, not all public transit modes are created equal -- those that help alleviate traffic congestion are the most desirable. Using a unique panel dataset of Beijing's residential properties on sale between 2003 and 2005, I find strong evidence that traffic delays translate into lower housing prices, confirming that congestion is costly. Moreover, I show that announcements of metro line construction inflate prices of properties near future stations, and the increase is even more staggering for more congested areas. This suggests that metro lines are expected to reduce adverse impacts of congestion. However, additional bus routes are not capitalized into prices because buses move slowly in the gridlocked city, often exacerbating rather than alleviating congestion. These findings suggest that the overall quantity of public transit services does not necessarily increase welfare.
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