Finance Theses and Dissertations
Permanent URI for this collectionhttp://hdl.handle.net/1903/2771
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Item Essays in Corporate Finance(2017) Hu, Xiaoyuan; Maksimovic, Vojislav; Business and Management: Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation presents two essays about corporate finance, product market, and corporate governance. The first essay shows that, depending on product market structure, firms adjust executive compensation differently in response to shocks to firm risk. Using a natural experiment that increases firm risk due to discoveries of carcinogens, I find that treated firms increase CEO risk-taking incentives to mitigate underinvestment. This result is mainly driven by treated firms in less affected industries, which suggests that firms respond to shocks more strongly when fewer rivals face the same shock, and extends existing work on executive compensation adjustments based on industry-level analyses. The second essay provides evidence that the effect of product market competition on corporate performance depends on the overlap in customer base. Competition between firms supplying to a same customer mitigates the decline in firms' operating performance after the passage of a business combination law. This finding is more evident when the common customer is the only major customer or when firms produce specific inputs. In addition, competition between firms supplying to different customers has little effect on firm performance. These results highlight the impact of the structure of production cluster, defined as a group of same-industry firms that supply to a same customer, on corporate outcomes.Item Empirical Essays in Corporate Finance(2005-04-20) Minnick, Kristina Leigh; Senbet, Lemma; Prabhala, Nagpurnanand; Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Over the past twenty years, write-offs have grown in popularity. With the increased usage of write-offs, it is becoming more important to understand the mechanisms behind why companies take write-offs and how write-offs affect company performance. In this paper, I examine the cross-sectional determinants of the decision to take write-offs. I use a hand-collected dataset on write-offs that is much more comprehensive than existing write-off datasets. Contrary to much hype and scandals surrounding a few write-offs, I find that quality of governance is positively related to write-off decisions in the cross-section. My results also suggest that poor governance companies wait to take write-offs until it becomes inevitable, while well-monitored companies take write-offs sooner. As a result, the charge is substantially larger than the average write-off charge. When these poor governance companies announce write-offs, the announcement generates negative abnormal returns. However, when good corporate governance companies announce write-offs, the charge is substantially smaller than the average charge. These well-monitored companies take write-offs immediately following a problem. Following the write-off announcements of these types of companies, average announcement day effects exceed a positive six percent. These results suggest that companies with quality monitoring mechanisms use write-offs in a manner that is consistent with enhancing shareholder value. In my second essay I examine the effect of write-off announcements on the stock market liquidity of firms taking write-offs from 1980 to 2000. I find that there are substantial improvements in stock market liquidity following corporate write-offs. Spreads decrease and turnover volume increases after write-off announcements, which indicates an improvement in liquidity. The liquidity improvement is greater for better governed companies. I decompose bid-ask spreads and show that adverse selection costs decrease substantially as market participants respond to the write-off announcement. The evidence suggests a liquidity benefit of write-offs that must be weighed against any other perceived cost of write-offs. Such a liquidity benefit may validate that write-offs convey favorable information about the firm.Item INTERNATIONAL CORPORATE GOVERNANCE: A STUDY OF COMPLEMENTARITIES AND CONVERGENCE(2004-08-31) Ayyagari, Meghana; MAKSIMOVIC, VOJISLAV; Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This thesis contributes to contemporary research in international corporate governance by investigating two related questions: (1) Is there a convergence in corporate governance towards the US model as suggested by theories of functional convergence and (2) How do differing regulatory environments influence the choice of corporate governance instruments? In Part I, I examine if firms from poor investor protection regimes bond themselves to better corporate governance by listing on exchanges in more protective regimes, such as the US, thereby achieving functional convergence. I study the effect of cross-listing on ownership and control structures in a sample of 425 firms from 42 countries that cross-list on a major exchange in the US. I find the following features post cross-listing: (1) Very few firms (11 out of 262) migrate to a dispersed ownership structure, contrary to the theory that firms change their corporate governance structure by bonding to US laws (2) A significant fraction of firms experience control changes where the original controlling shareholder sells his control block to a new owner (3) 45% of the control changes result in a foreign owner and individual firm characteristics like small size and low leverage are strong predictors of a foreign control change (4) Firms that undergo a control change significantly increase their debt capacity. The findings of this section show that foreign firms use cross-listing as a means to sell control blocks and increase debt capacity rather than as legal bonding mechanisms. In Part II, I provide a theoretical motivation for the empirical finding in Part I, by deriving the features of an optimal governance system as a function of the level of investor protection in the economy. The model predicts that in an environment of poor investor protection, ownership, leverage and monitoring are complementary instruments of corporate governance where the use of one instrument increases the marginal benefit of the other. The model suggests that one cannot expect to see convergence in governance systems by changing only one aspect of the complementary cluster. Empirical evidence of the complementarities suggested by the model is provided using a sample of transition economy firms from the Amadeus Database. The two parts of the thesis together show that selection of corporate governance mechanisms involves complementarities between the mechanisms and the regulatory environment and we are not likely to see a convergence in governance structures unless there is a significant convergence in legal rules shaping the governance structures.