Browsing by Subject "Corporate finance"

Now showing 1 - 8 of 8

Essays in international corporate finance
(2011-05) Riutort, Julio César; Almazan, Andres; Abrevaya, Jason; Alti, Aydogan; Drexler, Alejandro; Sialm, Clemens; Titman, Sheridan
This 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.
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.
Firm finances and responses to trade liberalization : evidence from U.S. tariffs on China
(2019-06-18) Schiff, Avishai; Cohn, Jonathan B.; Boehm, Christoph; Alti, Aydogan; Fracassi, Cesare; Titman, Sheridan
This dissertation examines the relationship between a firm's finances and its response to trade liberalization. Understanding how firms with different financial structures react to a major trade liberalization event sheds light both on an important real effect of financial frictions as well as on the underlying mechanisms of reorganization in the U.S. manufacturing sector. In the first chapter, I summarize the nascent yet growing literature at the intersection of corporate finance and trade economics and lay out the contribution of this research. In the second chapter, I provide institutional details on the natural experiment that lies at the heart of my empirical analysis. The conferral of Permanent Normal Trade Relations (PNTR) status to China, effective 2001, reduced uncertainty about future trade costs and facilitated investment in setting up import and distribution networks in China. I discuss the validity of the PNTR shock, arguing that it was an unexpected and material relaxation of trade barriers between the U.S. and China. I also lay out the main hypotheses relating firm finances and responses to freer trade. Increased import competition may represent a threat for many U.S. firms, especially those lacking the financial resources to properly respond. However, the opening of Chinese labor markets and the possibility of offshoring likely represents an important opportunity for firms with the financial wherewithal to invest in overseas production and import networks. While both channels translate to large domestic job losses, the underlying mechanisms and the firms responsible for the losses are very different. In the third and final chapter I use the PNTR shock, along with micro-level data from the U.S. Census Bureau, to empirically assess how firm finances relate to trade responses. I find larger manufacturing job losses in better capitalized firms - those with less leverage and more cash on hand. The effects concentrate in industries where weaker balance sheets are likely to lead to collateral and other borrowing constraints, helping rule out alternative explanations. Finally, domestic manufacturing job losses are not accompanied by greater reductions in sales or aggregate employment, but better capitalized firms do exhibit reduced input costs, increased productivity, and are more likely to invesst in establishing import networks in China. These findings point to offshoring as the predominant firm response to trade liberalization and suggest a role for financial capacity in facilitating offshoring investments.
Health care and corporate finance
(2015-12) Towner, Mitch Scott; Starks, Laura T.; Cohn, Jonathan B.; Fracassi, Cesare; Alti, Aydogan; McInnis, John
This 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.
Leverage and maintenance investment : evidence from apartments
(2021-04-23) Seltzer, Lee H.; Titman, Sheridan; Cohn, Jonathan B.; Starks, Laura; Kruger, Samuel; Geruso, Michael
In this dissertation, I examine the relationship between apartment building leverage and its maintenance investment. Understanding how building debt impacts building maintenance has important implications for the quality of life for renters as well as the asset value. In the first chapter, I provide an overview of the contribution of this dissertation, as well as a survey of the literature. In the second chapter, I introduce a unique data set providing information on both apartment building mortgages as well as apartment building maintenance. I exploit housing code enforcement within US cities to identify instances where a building is maintained poorly enough that it fails to abide by local laws. This section both provides institutional background on housing codes, as well as cross-sectional analysis of apartment mortgages. In the third chapter, I ask the question of whether apartment buildings that are more highly leveraged are more likely to incur code violations. I first build a stylized model providing a theoretical prediction that buildings with higher leverage should be less well maintained. I then use a panel of 45 cities throughout the United States to show that buildings with higher loan-to-value ratios are more likely to incur housing code violations. To address endogeneity concerns, I then exploit a natural experiment leading to increases in building leverage for some rent stabilized buildings in New York City, but not others. I show that the shock leads to an increase in code violations for affected buildings relative to controls, and that this effect is concentrated among buildings with high leverage before the shock. These findings are consistent with highly leveraged buildings having poorer levels of maintenance. Finally, in the fourth chapter I conclude and discuss possible avenues for future work on apartment maintenance.
Preferred stocks : a critical study of the preferences given corporate industrial capital securites
(1934) Raisty, Lloyd Bernard; Not available
Two essays on corporate finance
(2010-05) Lian, Jie, 1977-; Parrino, Robert, 1957-; Alti, Aydogan; Fredrickson, James; Hartzell, Jay; Titman, Sheridan
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.
Two essays on managerial risk-seeking activities and compensation contracts
(2014-08) Kang, Chang Mo; Almazan, Andres
This 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.