Essays in behavioral finance

Abstract

In the first essay, I examine the effect of tournament incentives on employee turnover and productivity. Using the 2018 mandatory disclosure of the CEO-median employee salary ratio as the experimental setting, I find that firms with a high CEO-employee pay gap experience increased post-disclosure inventor employee turnover. The inventors who leave (“leavers”) are more likely to switch jobs to firms with a lower pay gap. Inventors with fewer pre-disclosure patents and citations are more likely to leave. The inventors who remain (“stayers”) in high pay gap firms show an increase in post-disclosure productivity. Conversely, stayers with high job-switching costs exhibit lower productivity. Overall, these findings are consistent with the ahead-behind asymmetry in tournament theory. In the second essay, I examine disparities in insurance outcomes across racial and ethnic minority groups. Flood insurance by the NFIP is the most important risk management infrastructure in the U.S. to protect vulnerabilities and build resilience to increasing natural disasters. Using a combined dataset of nationwide flood insurance policies and claims, and census tract level demographics, I find that minorities tend to pay higher premium, obtain less coverage per premium dollar, and have a lower likelihood of getting claims paid. They also have lower insurance take-up rates. To aid identification, I utilize an exogenous shock of losing the Minority Tract designation. The results add to the discussions on discrimination by institutions and have significant public policy implications.