Matching Items (8)

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Essays in corporate policy: dividend policy, index labeling effect, investment, and cash flow duration

Description

This dissertation consists of two essays on corporate policy. The first chapter analyzes whether being labeled a “growth” firm or a “value” firm affects the firm’s dividend policy. I focus

This dissertation consists of two essays on corporate policy. The first chapter analyzes whether being labeled a “growth” firm or a “value” firm affects the firm’s dividend policy. I focus on the dividend policy because of its discretionary nature and the link to investor demand. To address endogeneity concerns, I use regression discontinuity design around the threshold to assign firms to each category. The results show that “value” firms have a significantly higher dividend payout - about four percentage points - than growth firms. This approach establishes a causal link between firm “growth/value” labels and dividend policy.

The second chapter develops investment policy model which associated with du- ration of cash flow. Firms are doing their business by operating a portfolio of projects that have various duration, and the duration of the project portfolio generates dif- ferent duration of cash flow stream. By assuming the duration of cash flow as a firm specific characteristic, this paper analyzes how the duration of cash flow affects firms’ investment decision. I develop a model of investment, external finance, and savings to characterize how firms’ decision is affected by the duration of cash flow. Firms maximize total value of cash flow, while they have to maintain their solvency by paying a fixed cost for the operation. I empirically confirm the positive correlation between duration of cash flow and investment with theoretical support. Financial constraint suffocates the firm when they face solvency issue, so that model with financial constraint shows that the correlation between duration of cash flow and investment is stronger than low financial constraint case.

Contributors

Agent

Created

Date Created
  • 2015

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Innovator Sorting and Firm Size

Description

This paper examines the link between firm size and innovation. Given that innovation is highly reliant on human capital, the ability to attract, motivate, and retain high quality inventors is

This paper examines the link between firm size and innovation. Given that innovation is highly reliant on human capital, the ability to attract, motivate, and retain high quality inventors is a key determinant of firm innovation. Firm size may affect these abilities, and small firms are known to account for a disproportionate share of aggregate innovation. I therefore investigate the role that sorting of inventors across firms plays in explaining this disparity. Talented inventors may find employment at a large firm less attractive due to the relative absence of growth options and a lower ability to link compensation to performance. Using inventor-level patent data, I construct employment histories for inventors at U.S. public firms. I find that the most productive inventors are disproportionately likely to move to small firms, while the least productive inventors disproportionately remain at large firms. These results cannot be explained fully by small firms' superior growth opportunities. In addition, productive innovators' turnover in small firms is sensitive to the level of option compensation. Taken together, this evidence is consistent with inventor sorting explaining part of the firm size innovation gap.

Contributors

Agent

Created

Date Created
  • 2016

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Inventory accumulation, cash flow, and corporate investment

Description

I show that firms' ability to adjust variable capital in response to productivity shocks has important implications for the interpretation of the widely documented investment-cash flow sensitivities. The variable capital

I show that firms' ability to adjust variable capital in response to productivity shocks has important implications for the interpretation of the widely documented investment-cash flow sensitivities. The variable capital adjustment is sufficient for firms to capture small variations in profitability, but when the revision in profitability is relatively large, limited substitutability between the factors of production may call for fixed capital investment. Hence, firms with lower substitutability are more likely to invest in both factors together and have larger sensitivities of fixed capital investment to cash flow. By building a frictionless capital markets model that allows firms to optimize over fixed capital and inventories as substitutable factors, I establish the significance of the substitutability channel in explaining cross-sectional differences in cash flow sensitivities. Moreover, incorporating variable capital into firms' investment decisions helps explain the sharp decrease in cash flow sensitivities over the past decades. Empirical evidence confirms the model's predictions.

Contributors

Agent

Created

Date Created
  • 2013

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Essays in finance

Description

In the first chapter, I develop a representative agent model in which the purchase of consumption goods must be planned in advance. Volatility in the agent's portfolio increases the risk

In the first chapter, I develop a representative agent model in which the purchase of consumption goods must be planned in advance. Volatility in the agent's portfolio increases the risk that a purchase cannot be implemented. This implementation risk causes the agent to make conservative consumption plans. In the model, this leads to persistent and negatively skewed consumption growth and a slow reaction of consumption to wealth shocks. The model proposes a novel explanation for the negative relation between volatility and expected utility. In equilibrium, prices of risky assets must compensate for the utility loss. Hence, the model suggests a new mechanism for generating the equity risk premium. Importantly, because implementation risk does not rely on the co-movement of asset prices with marginal utility, the resulting equity premium does not require concavity of the intratemporal utility function.

In the second chapter, I challenge the view that equity market timing always benefits

shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, I show that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. My theory can be used to infer firms' maximization objectives from their observed market timing strategies. I argue that the popularity of stock buybacks, the low frequency of seasoned equity offerings, and the observed post-event stock returns are consistent with managers maximizing current shareholder value.

Contributors

Agent

Created

Date Created
  • 2015

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Debt structure and future financing and investment

Description

I study the relation between firm debt structure and future external financing and investment. I find that greater reliance on long-term debt is associated with increased access to external financing

I study the relation between firm debt structure and future external financing and investment. I find that greater reliance on long-term debt is associated with increased access to external financing and ability to undertake profitable investments. This contrasts with previous empirical results and theoretical predictions from the agency cost literature, but it is consistent with predictions regarding rollover risk. Furthermore, I find that firms with lower total debt (high debt capacity) have greater access to new financing and investment. Lower leverage increases future debt issues and capital expenditures, and firms do not fully rebalance by reducing the use of external financing sources such as equity. Finally, my results support the view that greater reliance on unsecured debt can increase future debt financing. Overall, my paper offers new insights into how aspects of debt structure, in particular maturity, are related ex-post to firms' ability to raise new financing and invest.

Contributors

Agent

Created

Date Created
  • 2017

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From Playground to Boardroom: Endowed Social Status and Managerial Performance

Description

By matching a CEO's place of residence in his or her formative years with U.S. Census survey data, I obtain an estimate of the CEO's family wealth and study the

By matching a CEO's place of residence in his or her formative years with U.S. Census survey data, I obtain an estimate of the CEO's family wealth and study the link between the CEO's endowed social status and firm performance. I find that, on average, CEOs born into poor families outperform those born into wealthy families, as measured by a variety of proxies for firm performance. There is no evidence of higher risk-taking by the CEOs from low social status backgrounds. Further, CEOs from less privileged families perform better in firms with high R&D spending but they underperform CEOs from wealthy families when firms operate in a more uncertain environment. Taken together, my results show that endowed family wealth of a CEO is useful in identifying his or her managerial ability.

Contributors

Agent

Created

Date Created
  • 2018

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Dissertation on generalized empirical likelihood estimators

Description

Schennach (2007) has shown that the Empirical Likelihood (EL) estimator may not be asymptotically normal when a misspecified model is estimated. This problem occurs because the empirical probabilities of individual

Schennach (2007) has shown that the Empirical Likelihood (EL) estimator may not be asymptotically normal when a misspecified model is estimated. This problem occurs because the empirical probabilities of individual observations are restricted to be positive. I find that even the EL estimator computed without the restriction can fail to be asymptotically normal for misspecified models if the sample moments weighted by unrestricted empirical probabilities do not have finite population moments. As a remedy for this problem, I propose a group of alternative estimators which I refer to as modified EL (MEL) estimators. For correctly specified models, these estimators have the same higher order asymptotic properties as the EL estimator. The MEL estimators are obtained by the Generalized Method of Moments (GMM) applied to an exactly identified model. The simulation results provide promising evidence for these estimators. In the second chapter, I introduce an alternative group of estimators to the Generalized Empirical Likelihood (GEL) family. The new group is constructed by employing demeaned moment functions in the objective function while using the original moment functions in the constraints. This designation modifies the higher-order properties of estimators. I refer to these new estimators as Demeaned Generalized Empirical Likelihood (DGEL) estimators. Although Newey and Smith (2004) show that the EL estimator in the GEL family has fewer sources of bias and is higher-order efficient after bias-correction, the demeaned exponential tilting (DET) estimator in the DGEL group has those superior properties. In addition, if data are symmetrically distributed, every estimator in the DGEL family shares the same higher-order properties as the best member.  

Contributors

Agent

Created

Date Created
  • 2013

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Industry-specific discretionary accruals and earnings management

Description

In this dissertation, I examine the source of some of the anomalous capital market outcomes that have been documented for firms with high accruals. Chapter 2 develops and implements a

In this dissertation, I examine the source of some of the anomalous capital market outcomes that have been documented for firms with high accruals. Chapter 2 develops and implements a methodology that decomposes a firm's discretionary accruals into a firm-specific and an industry-specific component. I use this decomposition to investigate which component drives the subsequent negative returns associated with firms with high discretionary accruals. My results suggest that these abnormal returns are driven by the firm-specific component of discretionary accruals. Moreover, although industry-specific discretionary accruals do not directly contribute towards this anomaly, I find that it is precisely when industry-specific discretionary accruals are high that firms with high firm-specific discretionary accruals subsequently earn these negative returns. While consistent with irrational mispricing or a rational risk premium associated with high discretionary accruals, these findings also support a transactions-cost based explanation for the accruals anomaly whereby search costs associated with distinguishing between value-relevant and manipulative discretionary accruals can induce investors to overlook potential earnings manipulation. Chapter 3 extends the decomposition to examine the role of firm-specific and industry-specific discretionary accruals in explaining the subsequent market underperformance and negative analysts' forecast errors documented for firms issuing equity. I examine the post-issue market returns and analysts' forecast errors for a sample of seasoned equity issues between 1975 and 2004 and find that offering-year firm-specific discretionary accruals can partially explain these anomalous capital market outcomes. Nonetheless, I find this predictive power of firm-specific accruals to be more pronounced for issues that occur during 1975 - 1989 compared to issues taking place between 1990 and 2004. Additionally, I find no evidence that investors and analysts are more overoptimistic about the prospects of issuers that have both high firm-specific and industry-specific discretionary accruals (compared to firms with high discretionary accruals in general). The results indicate no role for industry-specific discretionary accruals in explaining overoptimistic expectations from seasoned equity issues and suggest the importance of firm-specific factors in inducing earnings manipulation surrounding equity issues.

Contributors

Agent

Created

Date Created
  • 2011