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Author: Joonghyuk Kim
Publisher:
ISBN:
Category :
Languages : en
Pages : 250
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Author: Joonghyuk Kim
Publisher:
ISBN:
Category :
Languages : en
Pages : 250
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Author: Lin William Cong
Publisher:
ISBN:
Category :
Languages : en
Pages :
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This thesis consists of two essays that examine several problems in corporate finance and mechanism design. The central theme is endogenous agency conflicts and their impact on dynamic investment decisions. The first essay features auctions of assets and projects with embedded real options, and subsequent exercises of these investment options. The essay shows timing and security choice of auctions endogenously misalign incentives among agents and derives the optimal auction design and exercise strategy. The second essay studies implications of endogenous learning on irreversible investment decisions, in particular, how learning gives rise to asymmetric information between managers and shareholders in decentralized firms. Depending on the quality of the project, the optimal contract between principal and agent distorts investments in ways that has not been examined in the literature. Specifically, in Chapter 1 of the dissertation, I study how governments and corporations auction real investment options using both cash and contingent bids. Examples include sales of natural resource leases, real estate, patents and licenses, and start-up firms with growth options. I incorporate both endogenous auction initiation and post-auction option exercise into the traditional auctions framework, and show that common security bids create moral hazard because the winning bidder's real option differs from the seller's. Consequently, investment could be either accelerated or delayed depending on the security design. Strategic auction timing affects auction initiation, security ranking, equilibrium bidding, and investment; it should be considered jointly with security design and the seller's commitment level. Optimal auction design aligns investment incentives using a combination of down payment and royalty payment, but inefficiently delays sale and investment. I also characterize informal negotiations as timing and signaling games in which bidders can initiate an auction and determine the forms of bids. I show that post-auction investments are efficient and bidding equilibria are equivalent to those of cash auctions. However, in this setting, bidders always initiate the informal auctions inefficiently early. In addition, I provide suggestive evidence for model predictions using data from the leasing and exploration of oil and gas tracts, which leads to several ongoing empirical studies. Altogether, these results reconcile theory with several empirical puzzles and imply novel predictions with policy relevance. In Chapter 2, I examine learning as an important source of managerial flexibility and how it naturally induces information asymmetry in decentralized firms. Timing of learning is crucial for investment decisions, and optimal strategies involve sequential thresholds for learning and investing. Incentive contracts are needed for learning and truthful reporting. The inherent agency conflicts alter investment behavior significantly, and are costly to investors and welfare. But contracting on learning restores efficiency with low future uncertainty or sufficient liquidity. Unlike prior studies, the moral hazard of learning accelerates good projects and delays bad projects. Even the best type's investment is distorted, and only when learning is contractible can adverse selection dominate learning.
Author: An Chee Low
Publisher:
ISBN:
Category : Compensation management
Languages : en
Pages : 160
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Abstract: Problems of endogeneity often cloud interpretation in corporate governance research. In this dissertation, I make use of changes in takeover laws as exogenous shocks to examine how managers react to a weakening of the corporate governance structure. In the first essay, I examine how the increased protection from hostile takeovers affects managerial incentives to change firm risk, while in the second essay I examine how firm size and firm investment behavior changes in response to the exogenous shocks. In both cases, I find that managers take actions that are beneficial to themselves but are detrimental to shareholders. Empirical evidence in the first essay show that risk-averse managers decrease firm risk in response to an exogenous increase in takeover protection in Delaware during the mid-1990s. I also find that the decrease in firm risk is concentrated among firms with low managerial equity-based incentives. Further, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking. Overall, the evidence supports the hypothesis that equity-based compensation can be used to align managerial interests with that of shareholders. In the second essay, I find that managers increase their firm size in response to the increased protection from hostile takeovers. The increase is predominantly among firms with low growth and high cash holdings which are exactly the firms where the agency costs of free cash flow are most costly to shareholders (Jensen, 1986). I also predict important differences in managerial empire-building through internal investments versus external acquisitions in the 1980s and 1990s based on changes in stocks and options-based incentives. Consistent with my predictions, managers prefer to empire-build through internal investments during the 1980s, while in 1990s they choose to grow more through external acquisitions.
Author: Jie Lian
Publisher:
ISBN:
Category :
Languages : en
Pages : 216
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This 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.
Author: Sen Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 248
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Author: Tareque Nasser
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 216
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This dissertation contains three distinct essays in the broad area of corporate finance. The first two essays examine the role of an independent director who is also a blockholder (IDB), a potent governance mechanism, on executive compensation, and corporate financial and investment policies, respectively. The last essay examines insider trading in takeover targets. The first essay examines three issues. First, we investigate the determinants of an IDB's presence in a firm. Second, we examine the relations between IDB presence and (1) the level and structure of CEO compensation, and (2) CEO turnover-performance sensitivity. Third, we analyze if IDB presence is related to firm valuation. Our findings suggest that the presence of an independent blockholder on the board promotes better incentives and monitoring of the CEO, and consequently leads to higher firm valuation. In the second essay, we examine how the presence of an IDB affects: (1) four key financial and investment policy choices of a firm: the levels of cash holdings, dividends, investments and financial leverage, and (2) firm risk. We also examine how the market values IDB presence and changes in various policy choices associated with IDB presence in a firm. We find that firms with IDBs have significantly lower levels of cash holdings, dividend yields, repurchases, and total payout, but higher levels of capital expenditures. We also find that firms with IDBs have lower risk. Overall, IDB presence appears to reduce agency problems between managers and shareholders. The third essay brings large-sample evidence on whether the level and pattern of profitable insider trading before takeover announcements is abnormal for a broad cross-section of targets of takeovers during modern times. We find an interesting and subtle pattern in the average pre-takeover trading behavior of target insiders. While insiders reduce both their purchases and sales below normal levels, their sales reduce more than purchases, leading to an increase in net purchases. This pattern of 'passive' insider trading is confined to the six-month period before takeover announcement, holds for each insider group, for all measures of net purchases examined, and in certain sub-samples with less uncertainty about takeover completion.
Author: Mehmet Engin Akbulut
Publisher:
ISBN:
Category :
Languages : en
Pages : 286
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Author: Daniel Newton Deli
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 202
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Author: Gauri W. Karve
Publisher:
ISBN: 9781109574074
Category :
Languages : en
Pages : 155
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This thesis presents two essays that link firm behavior to constraints they face while raising capital in external markets. The first. essay features a theoretical model that establishes the importance of speculative motive and firm borrowing capacity, as reflected by asset tangibility, on cash management decisions of financially-constrained firms. The study concludes that for constrained firms, cash varies positively with asset intangibility and likelihood of future profitable investment, and negatively with future cash flows; while these relationships are imperceptible for unconstrained firms. The model further introduces a risk-averse firm owner and proves that ceteris paribus, with an increase in his degree of risk aversion, the owners investment choice conforms with theory and he invests in a profitable project with certain payoff over a higher-yielding but uncertain future project. This essay is the first study to investigate the effects of future stochastic investment opportunity, asset tangibility and risk aversion exclusively on rash holdings of constrained firms.
Author: YoungHa Ki
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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