Date of Graduation


Document Type


Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level





Craig G. Rennie

Committee Member

Wayne Y. Lee

Second Committee Member

Timothy J. Yeager


Bank, Culture, Incentives, Liquidity, Share Repurchase


My research interests focus on the economic behavior, choices, and actions of organizations as well as individuals given their incentives, and analyze the consequences of such decisions to the financial health of firms and the macro economy. A firm is incentivized by the value investors place on its operations; while employees, particularly the management team, is incentivized by the private benefits the firm gives them. Understanding the impact of such incentives will help alleviate the classic agency costs in modern organizations.

Stock illiquidity raises the cost of share ownership to outside investors. The sizable adverse price impact of trading increases transactions costs and stock volatility. The reduced gains from informed trading discourages the acquisition of private information and impedes the price discovery process. The first essay substantiates that shares of financially constrained firms are significantly more illiquid than shares of similar but financially unconstrained firms. Acting as buyers of last resort for their own shares, share repurchases by financially constrained firms enhance stock liquidity, which alleviates the cost of external financing and underinvestment. Increased stock liquidity improves information efficiency, inducing higher value-added from incremental capital investments. Further, higher stock liquidity lowers stock volatility and allows financially constrained firms to issue equity.

In the second and third essays, I investigate whether the incentives given to the employees and the management team at banks contribute to the financial crisis. I provide evidence that CEO compensation is weakly related to bank risk measures and risky bank activities. However, when looking at banks with regards to their reward cultures, I find that during the 2008 crisis period, banks either at the high or low reward culture groups perform worse, and are more risky than banks in the average reward culture group. The reward culture score represents the common factor in incentives across all levels of the bank, from CEO, Vice Presidents to all other employees. The findings are consistent with the problems of adverse selection and moral hazard associated with incentive misalignment when incentives are too low or too high. This shows the importance of reward culture in understanding the role of performance-based compensation.