Browsing by Subject "Corporate finance"
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Item A broader test of market timing theory of capital structure(Texas Tech University, 2007-05) Kaya, Halil D.; Hein, Scott E.; Mercer, Jeffrey M.; Cooney Jr., John W.; Bremer, Ronald H.This dissertation attempts to answer these three main questions: (1) Is there evidence of market timing by corporations in equity, public debt, private placement, 144a, and syndicated bank loan markets? (2) Does market timing in each of these markets have a persistent impact on issuing firms’ capital structures? (3) What are the factors that affect a firm’s decision to use a specific type of financing? I find evidence of market timing in IPO, SEO, public debt, private placement/144a, and syndicated bank loan markets. I find that hot-market IPO and SEO firms issue substantially more equity than cold-market firms do. In all three debt markets, firms incorporate the observed changes in the interest rates into their decisions on how much to borrow from the creditors. However, firms do not incorporate or are not able to incorporate their predictions for future rates into their decisions on how much to borrow. In public debt and syndicated bank loan markets, firms use both the observed changes in interest rates and their predictions for the future rates as their main criteria for their maturity choice. However, for private placements and 144a issues, they use only the observed changes in interest rates as their main criteria for maturity choice. Although market conditions have an impact on the amount of financing and the maturity of debt financing, I find that they do not have an impact on a firm's choice between equity and public debt, public debt and private debt, and private debt and syndicated bank loan financing. On the other hand, equity market timing is a determinant of a firm's choice between equity and private debt financing, and syndicated loan market timing is a significant predictor of a firm's choice between public debt and syndicated loan financing. There is no evidence of a persistent impact of market timing in equity, public debt, private placement/144a, and syndicated bank loan markets. The results for the equity markets are consistent with the previous studies.Item Essays in international corporate finance(2011-05) Riutort, Julio César; Almazan, Andres; Abrevaya, Jason; Alti, Aydogan; Drexler, Alejandro; Sialm, Clemens; Titman, SheridanThis dissertation consists of three essays in international corporate finance. It studies the impact of aggregate conditions and the institutional environment on the behavior of publicly traded firms from a broad sample of countries. In the first essay I argue that when credit constraints are widespread, as may be the case in countries with poor investor protection, we should not necessarily expect small firms´ investment to be more sensitive to monetary contractions or negative aggregate shocks. A simple model of investment with credit constraints shows that for this pattern to occur we need a high enough level of investor protection. The empirical evidence is broadly consistent with the hypothesis. In periods of tight credit conditions, small firms from countries with high creditor protection contract their investment rate more than large firms, while there is no significant difference in the investment contraction of small and large firms in from low creditor protection countries. In the second essay I explore to what extent the effect of legal origin on payout policy, ownership concentration, and valuation has been stable through time. The results suggest that previously established results should be taken with caution, and cast doubts on their strength. In particular, it appears that corporate characteristics are converging across countries, and legal origin is not longer an important determinant of them. In the final essay I study to what extent capital raising in international markets is related to firms´ ability to react to financial shocks. I provide a complete descriptive picture of the main patterns in the use of international financing between 1990 and 2009,study how issuers and non-issuers grow during financial crises, and how their growth is related to the aggregate conditions in the economy and their past financing behavior. Firms that raise capital internationally have a lower correlation with the local GDP growth, and grow more during local financial crises; however this relationship depends on the overall degree of development of the country and is highly dependent on the determinants of the issuance decision. The descriptive analysis show that international capital raising is pervasive in most countries, but the firms doing so differ depending on the development of their country of origin.Item Essays on banks' resolutions of problem mortgage loans(2013-08) Kim, Jung-Eun, active 2013; Hartzell, Jay C.This dissertation examines banks' resolution of distressed commercial mortgage loans. Following the introduction in the first chapter, the second chapter reviews the literature on banks' resolutions of distressed loans. In chapter 3, I present a model of banks' resolution decisions under information asymmetry. The model shows that banks prefer to renegotiate instead of foreclosing problem loans when there is a cost associated with revealing the quality of their mortgage portfolios. The fourth chapter presents empirical findings that are consistent with the model, i.e., that banks' resolution decisions are affected by their concerns of revealing negative information through large foreclosures. I find that larger loans are more likely to be renegotiated than smaller loans and that banks take a shorter amounts of time to renegotiate rather than to foreclose on problem loans. Secondly, the impact of loan size on the propensity to renegotiate is magnified for banks with superior past performance and for banks with lower local mortgage distress. In addition, I find that banks that raised new equity capital exhibit a stronger tendency to renegotiate larger problem loans in the previous year. In chapter 5, as a falsification test, I compare the bank-held sample with a Commercial Mortgage Backed Securities (CMBS) sample that does not share banks' mimicking motives, because special servicers of problem loans are not the originators of those loans. I find that the results are weaker or not present for CMBS, in contrast to the bank loan sample. In chapter 6, I study banks' resolution of problem loans while considering their problem loan portfolios. I consider two aspects of banks' problem loan portfolios -- their relationships with borrowers and the degree of regional diversification. Empirical results suggest that the sample banks choose to act "tougher", i.e., foreclose more, as they have more loans with a borrower. Finally, the degree of geographical diversification in problem loan portfolios may affect banks' resolution decisions. I find that as banks have geographically concentrated problem loan portfolios, they are more likely to renegotiate larger loans, measured either absolutely or relatively. Chapter 7 concludes.Item Health care and corporate finance(2015-12) Towner, Mitch Scott; Starks, Laura T.; Cohn, Jonathan B.; Fracassi, Cesare; Alti, Aydogan; McInnis, JohnThis dissertation examines issues in U.S. healthcare and capital structure. In the first chapter I give a brief summary of the institutional details of the U.S. healthcare sector with a special emphasis on healthcare finance. In addition to its large size, U.S. healthcare has four unique features that can be used to help answer corporate finance questions: segmented markets, variation in corporate type, extensive data requirements and recent consolidation. I explain how changes over the last 100 years have led to each of these features. Next, I delve deeper into bargaining between insurance companies and hospitals, Medicare pricing, and hospital capital structure decisions during my sample period, 2008-2012. Finally, I conclude with a brief discussion on how the Affordable Care Act has contributed to these factors. In the second chapter I use the health care industry as a novel laboratory in which to study a firm's strategic use of debt to enhance their bargaining power during negotiations with non-financial stakeholders. I show that reimbursement rates negotiated between a hospital and insurers for a specific procedure are higher when the hospital has more debt. I also show that this effect is stronger when hospitals have less bargaining power relative to insurers ex ante, and that hospitals take on more debt when they have less bargaining power using six proxies including differences in state Medicare laws to further strengthen identification. This is the first paper to provide direct evidence that debt improves a firm's bargaining outcomes.Item Two essays on corporate finance(2010-05) Lian, Jie, 1977-; Parrino, Robert, 1957-; Alti, Aydogan; Fredrickson, James; Hartzell, Jay; Titman, SheridanThis dissertation consists of two essays on corporate finance. Essay one examines whether corporate governance affects firm performance after capital investments. I find that among firms with weak corporate governance, those with high abnormal capital investments have significantly lower stock performance than those with low abnormal capital investments. In addition, a significant portion of the difference in abnormal stock performance between the two subgroups occurs around earnings announcements. In contrast, the level of abnormal capital investments is not related to subsequent stock performance or earnings announcement returns at firms with strong corporate governance. These findings indicate that corporate governance structure enhances firm value by mitigating the over-investment problem. Essay two examines how insider trading activity prior to seasoned equity offerings (SEOs) is related to subsequent investment, operating, and financing decisions of the issuer. I find that SEO firms with more abnormal insider sales issue more seasoned equity, hold more cash and increase dividend payouts more. They also perform more poorly. Following the SEO, these firms also issue less equity and the effects of the SEO on their capital structures gradually reverses. These findings suggest that SEO firms with more abnormal insider sales are more likely to have overpriced stock, while those with less abnormal insider sales are more likely to have good investment opportunities. Insider trading activity prior to the SEO provides valuable information about the firm’s incentives to issue seasoned equity and help to predict the real activities of the issuer following the SEO.Item Two essays on managerial risk-seeking activities and compensation contracts(2014-08) Kang, Chang Mo; Almazan, AndresThis dissertation examines how the structures of compensation for executives and directors are affected by the possibility that managers can influence the risk of a firm's cash flows. In chapter 1, I consider a moral hazard model which shows that a strong pay-for-performance sensitivity in managerial compensation may deteriorate shareholder value when shareholders cannot monitor managerial risk-seeking activities. Intuitively, while high-powered managerial compensation provides the manager with incentives to increase the firm's value by exerting effort, it also creates managerial incentive to engage in (unproductive) risk-seeking activities. To test this prediction, I consider a regulatory change that makes it more difficult for managers to conceal information about the (speculative) use of derivative instruments. Specifically, I examine how the structures of compensation for executives and managers are affected by the adoption of a new accounting standard, the Statement of Financial Accounting Standard No. 133 Accounting for Derivative Instruments and Hedging Activities (FAS 133) which mandates the fair value accounting for derivative holdings. Consistent with the model prediction, I find that relative to other firms, derivative users (firms that traded derivatives before adopting FAS 133) increase the pay-for-performance sensitivity of CEO/CFO compensation. In Chapter 2, I extend the model by incorporating the realistic features that shareholders delegate to the (self-interested) board the tasks of monitoring managers and of setting their compensation contracts. My analysis shows that while high-powered board compensation induces the board to monitor the firm and to properly design managerial compensation, it also provides the board with incentives to misreport managerial risk-seeking activities and to engage in collusive behavior with the manager at the expense of shareholders. From these trade-offs, I develop a number of testable hypotheses and take them to the data. Consistent with the model predictions, I find that firms in which (i) managerial risk-seeking activities are more likely to occur (e.g., high R&D firms or banks) and (ii) board monitoring costs are likely to be lower (e.g., firms that have non-officer blockholders on the board) show weaker pay-for-performance sensitivity of board compensation and stronger pay-for-performance sensitivity of CEO compensation.