Browsing by Subject "Banks and banking--United States"
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Item Essays on financial institutions(2008-08) Shah, Ronnie Rashmi, 1981-; Almazan, Andres; Titman, SheridanIn this dissertation, I explore the ability of financial institutions to impact firm behavior. The first essay examines whether relationships between venture capital owners (VCs) and investment banking underwriters affect a firm’s ability to issue equity. I find that past interactions between VC owners and underwriters in the form of previously underwritten initial public offerings (IPOs) significantly increase the likelihood that an IPO firm chooses a specific underwriter. In terms of how VCs and underwriters associate with each other, older VCs partner with more reputable underwriters. Despite paying higher fees, issuing firms benefit from stronger VC-Underwriter relationships through upward offer price revisions and higher valuations. VC-Underwriter relationships also predict underwriter choice in subsequent equity offerings. This essay provides empirical evidence that suggests VCs use their relationships with investment banks to enable their portfolio firms access to high quality underwriters and better underwriting services. The second essay investigates whether credit rating concerns affect capital investment decisions. Using ex-ante measures of proximity to a rating change, I find that firms that are near a credit rating downgrade spend significantly less on capital expenditures relative to those not near a rating change. The response of firms to credit rating upgrades is not symmetric: firms do not seem to adopt significantly different investment policies when near an upgrade. This effect of lowering investment when near a credit downgrade is stronger for firms that face financial constraints, experience greater adverse selection and are more active in debt markets. Related to reductions in investment, firms near rating changes also spend less on research and development expenses and pay lower dividends. My findings are consistent with firms conserving financial resources to prevent adverse credit rating changes that could increase their cost of capital.Item Reliability and relevance of market risk disclosures by commercial banks(2001-08) Hodder, Leslie Davis; Jennings, Ross (Ross Grant)This dissertation examines the relevance and reliability of mandated market risk disclosures of commercial banks. I assess reliability by examining the extent to which the disclosures are associated with future changes in income or fair values, conditional on actual changes in market factors. To evaluate the relevance of market risk measures, I provide evidence on the extent to which these disclosures are useful in explaining the firm's cost of equity. If the disclosures measure risks that investors consider when valuing stocks, then firms with disclosures indicating greater market risk should have higher costs of equity. In addition, I address two ancillary research questions. The first is whether reporting discretion enhances or impairs the relevance and reliability of market risk measures. To examine this issue, I compare the results for regulatory disclosures which permit very little discretion with results for SEC disclosures which permit a great deal of discretion. The second ancillary question is whether alternative bases of risk measurement (risk of income loss and risk of fair value loss) are each reliable and relevant measures of risk. Current SEC disclosure requirements treat fair value and income risk as interchangeable alternatives. I investigate whether income and fair value sensitivity disclosures are distinct risk constructs by assessing the incremental usefulness of each measure for explaining cross-sectional variation in the cost of equity. Results show that market risk measures are reliable in the sense that they are associated with actual future changes in income and fair values. However, these results are much stronger for regulatory disclosures that allow very little discretion. This suggests that the reliability of market risk disclosures is decreasing in the amount of discretion allowed by reporting standards. Consistent with their greater predictive accuracy, regulatory risk disclosure amounts are positively associated with the cost of equity, while SEC risk disclosures are not. In addition, each of the regulatory income and fair value disclosures is positively and incrementally associated with firms’ costs of equity suggesting that these measures are complementary rather than interchangeable risk measures. Results are robust to alternative specifications and alternative measures of risk.