Finance Theses and Dissertations
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Item Embargo When Life Gives You Lemons: Competition, Diversification, and Firm Resilience(University of Oregon, 2024-08-07) Gamrat, Gretchen; Chalmers, JohnThis study explores how product market competition and diversification relate to private and public firmresilience. Using retail scanner data, I construct firm-level measures of competition and product diversification closer to the product level and leverage the 2008 financial crisis and COVID-19 pandemic as sources of plausibly exogenous variation. Private firms tend to be smaller, less diversified, face greater competition and have greater revenue growth volatility. During the 2008 financial crisis and COVID-19 pandemic, higher market competition is significantly correlated with reduced revenue growth and revenue growth volatility. More diversified public and private firms experience reduced revenue growth volatility in non-crisis periods. However, diversification’s risk reduction capabilities significantly weaken during the COVID-19 pandemic.Item Open Access How Do Private Equity Buyouts Affect Employee Pension Plans?(University of Oregon, 2024-08-07) Zhong, Wensong; Wu, YouchangUsing data from the Form 5500 filings, I analyze the impact of private equity (PE) buyouts on the defined benefit (DB) plans of target firms. I find that following a buyout, DB plans are more likely to be frozen or terminated, and defined contribution (DC) plans are not likely to provide sufficient substitutes. Regarding the actuarial assumption and the pension characteristics, I find an increase in the pension liability discount rate and decreases in the projected benefit obligations (PBO), pension assets (PA), and contributions, but I do not find significant effects on funding ratio. Additionally, I find that investment strategies for these plans become riskier, with a higher allocation to equities and lower allocations to cash, government securities, insurance accounts, and mutual funds. However, there is no significant effect on realized returns. Overall, these results suggest that private equity buyouts may negatively affect the retirement welfare of DB plan participants of target firms.Item Open Access Parameter Uncertainty, Cashflow Betas, and Earnings Announcement Premia(University of Oregon, 2022-10-26) Pfiffer, Cameron; Gutierrez, RobertoI apply Bayesian methods to estimate parameters describing the relationship between firm earnings and unobserved common earnings shocks. I estimate a firm’s Bayesian cash-flow beta, which measures the comovement between firm earnings and a latent aggregate earnings factor, along with estimating the uncertainty about the firm’s cash-flow beta. Firms with high parameter uncertainty have higher expected stock returns and lower stock price reactions to earnings, consistent with investors’ rational learning in the presence of parameter uncertainty. A novel measure summarizes the capacity of a firm’s earnings news to convey information about the macroeconomic state and reveals that earnings responses and announcement risk premia increase with a firm’s informativeness. The most informative firms tend to announce earlier in earnings seasons.Item Open Access Corporate Social Responsibility, Pension Assumptions, and Risky Asset Allocations in Defined Benefit Pension Plans(University of Oregon, 2022-10-04) Jang, Donghyeok; Wu, YouchangI explore the role of corporate social responsibility (CSR) in mitigating agency issues in defined benefit (DB) pension plan management. Strong CSR firms tend to engage less in earnings management associated with executive options granting and CFOs' pay sensitivity to the stock value (Delta) through the assumed long-term rate of returns on pension assets. Furthermore, strong CSR firms are less likely to manipulate the pension discount rate in response to a change in the pension funding gap. I also investigate whether CSR influences firms' decision to make risky investments with pension assets. OLS analysis indicates that a standard deviation increase in the Material CSR score is associated with a 0.063 (1.93) percentage points decrease in assumed returns (equity allocation) in pension plans. Using BP Deepwater Horizon oil spill event as an exogenous shock, I provide supporting evidence for the causal link between firms' CSR performance and the pension policies.Item Open Access Common Ownership along the Supply Chain and Supplier Innovations(University of Oregon, 2021-09-13) Chen, Xian; Wu, YouchangCommon owners are the (institutional) investors that hold equities of multiple firms. I examine the impact of common ownership of suppliers and customers on suppliers' innovation activities. I find suppliers' investment in innovation, quantity and quality of innovation output increase when common owners control higher fractions of their and their customers’ shares outstanding. The impact of this vertical common ownership on innovation input and quality of innovation output is stronger and more robust than that of the horizontal common ownership. I provide plausible evidence for causality using both a difference-in-differences approach and an instrument variable approach based on a quasi-natural experiment in the form of financial institution mergers and acquisitions. Moreover, I test the potential channels through which the vertical common ownership could influence supplier innovation. My evidence suggests that common ownership increases suppliers' investment in innovation by mitigating hold-up issues between suppliers and customers, and enhances suppliers' innovation output performance by improving technological spillovers between suppliers and customers. However, my results also suggest that for suppliers producing mainly capital goods, these positive effects of common ownership on innovation are offset by a negative effect due to vertical creative destruction. Overall, my evidence suggests that common institutional ownership enhances suppliers' innovation performance by improving relationships between suppliers and their customers.Item Open Access How Do Technological Innovations Affect Corporate Investment and Hiring?(University of Oregon, 2020-09-24) Liu, Ying; Julio, BrandonUsing various measures for technological innovation, I show that corporate investment and hiring go up following technological advancements. The effect is stronger for firms with more industry- or firm-level innovations, among firms with lower capital intensity or greater marginal benefits from innovative outputs. In addition, firm-level production efficiency increases following innovations, with this effect concentrated among firms with greater industry- or firm-level innovative activity. Further, although cross-sectional heterogeneity exists, the firm-level capital-to-labor ratio does not increase significantly. Supporting the view of endogenous growth theory that firms with successful innovations tend to expand, these findings highlight the possible channels for innovations to propagate in the economy. These results also suggest, although making firms more efficient, technology does not reduce employment, suggesting technological innovations are, to some extent, Hicks-neutral.Item Open Access Managerial Incentives and Risk Taking: Evidence from Hedge Fund Leverage(University of Oregon, 2020-09-24) Xiao, Yi; Wang, JayUsing novel leverage and managerial ownership measures derived from public filings, this paper examines the role of managerial incentives in the use of leverage, in the context of hedge fund industry. I find a positive and convex relationship between fund leverage and the option-like compensation incentives, with the leverage level being significantly higher as the fund's asset under management (AUM) nears its high-water mark (HWM). I also find that hedge funds significantly reduce the leverage, when the incentive fee options are deep out of the money. Further, greater managerial ownership is associated with higher leverage, conditional on the incentive fee option being near the money. The findings lend support to option-like compensation contracts and managerial ownership improving incentive alignment between fund managers and investors. Interestingly, I find that investor flows and fund performance have an overall positive reaction to increases in leverage, which is mainly driven by well-performing funds with fund values sufficiently close to the HWMs.Item Open Access Patent Trolls and the Market for Acquisitions(University of Oregon, 2020-09-24) Dayani, Arash; Julio, BrandonFrivolous patent-infringement claims increase the cost of innovation for small businesses and force them to exit via premature and discounted acquisitions. This study investigates the effect of abusive patent-infringement claims by patent trolls on acquisitions of small firms. I exploit the staggered adoption of anti-patent troll laws in 35 states as a quasi-natural experiment and find that the laws have two effects on acquisitions. First, the number of acquisitions of small businesses by large firms declines after these laws are passed. Second, the anti-troll laws increase the acquisition price for large firms. I find that the market reflects the increased cost of acquisition following the passage of anti-troll laws as measured by the lower acquisition announcement returns. Moreover, I find evidence that large firms increase R&D expenditure after the adoption of state laws. Using a sample of acquisitions that are plausibly unaffected by the state laws, I disentangle alternative explanations such as local economic shocks, industry-wide changes and merger waves. Overall, the findings suggest that the anti-patent troll laws increase the value of small innovative firms.Item Open Access Cross-trading and Liquidity Management: Evidence from Municipal Bond Funds(University of Oregon, 2018-09-06) Yang, Jingyun; Wang, Z. JayThe high flow-performance sensitivity in open-end municipal bond funds motivates fund managers to actively manage funding liquidity risk and reduce the costs of flow-driven transactions. Funds with volatile past flows build up liquidity buffers by holding more cash and liquid municipal bonds in their portfolios. Funds rely on cash and liquid securities in flow management. Unconventional liquidity management tools, such as cross-trading between funds in the same family, are used by municipal bond funds in extreme situations. Fund families coordinate cross-trades between open- and low-value closed-end funds only when open-end funds are in distress.Item Open Access Political Connections in the Municipal Bond Market: Is There a Pay-to-Stay(University of Oregon, 2017-09-06) Liu, Yu; Wang, ZhiThis paper investigates the impact of investment banks’ political contributions on their underwriting business with local government officials. Using an original data set on municipal underwriting banks political contributions from 1994 to 2013, I find that political contributions are strongly associated with the likelihood that a contributing bank is hired, the bank’s market share, and the bond issuance cost. Specifically, contributing underwriters receive 19.6% more business than non-contributing banks. Bonds underwritten by contributing banks incur 4% higher fees compared with their non- contributing peers. A contribution of $1,000 is associated with $1,270 higher total compensation for a contributing underwriter. These results continue to hold when controlling for underwriters characteristics and local economic factors. The evidence suggests that political connections still play a valuable role in the municipal bond market after the adoption of Rule G-37.Item Open Access Are Good Deeds Rewarded? Director Awards and the Market for Directorships(University of Oregon, 2015-08-18) Tran, Hai; Del Guercio, DianePrior studies document that board directors who fail to act as effective monitors of management are penalized by the labor market in the form of fewer subsequent board seats. However, there is little evidence on how the market rewards directors for exceptional advising and monitoring on corporate boards. In this paper, I use national director awards as a positive shock to directors’ reputations and examine changes in board seats for award-winning directors. Award-winning directors gain more board seats than non-winning directors, both after and before the awards. Event study tests suggest that the quality of award-winning directors may have been revealed to the labor market before the awards but not to the broader stock market. Stock market reactions to appointments of award-winning directors are positive and statistically significant only after the awards, not before.Item Open Access Superstar CEOs and Innovation(University of Oregon, 2015-08-18) Park, Keun Jae; Atanassov, JulianI empirically evaluate three theoretical views of whether and how winning a high-profile CEO award affects innovation decisions. The agency theory predicts that receiving an award will increase managerial entrenchment and reduce managers’ efforts to create valuable innovations because they will either pursue value-decreasing pet projects or simply enjoy the quiet life (agency hypothesis). Conversely, the managerial myopia theory predicts that these awards may increase managerial job security and allow the CEO to focus on long-term innovative projects rather than on boosting the stock price through current earnings. Finally, the overconfidence theory predicts that these awards increase managerial incentives to innovate if they make CEOs overconfident. In my first set of tests, I find evidence that is consistent with the managerial myopia and overconfidence theories: award-winning CEOs innovate more than otherwise similar CEOs who do not win awards, both in terms of the number of patents and the number of citations per patent during the period 1992–2002. After further examination, the evidence continues to be consistent with the managerial myopia theory: there is a clear increase in CEO power and job security after winning a prestigious award and no such increase in overconfidence. I also document that the positive effect of CEO awards on innovation is weaker for firms with high institutional ownership. Overall, the evidence suggests that winning a prestigious award relieves managerial myopia and brings positive long-term benefits for the firm.Item Open Access How Do Dividend Announcements Affect Bondholder and Shareholder Wealth?(University of Oregon, 2014-10-17) Turkiela, Jason; Gutierrez, RoDividend payments to shareholders can create conflicts between debt and equity investors as these payments can expropriate wealth from bondholders to shareholders. However, dividend payments can also serve as a signal regarding firms' future earnings. Utilizing both improved bond event study techniques as well as a conditional event study model to control for self-selection and the presence of confounding earnings announcements, I find that, on net, dividend increases represent a transfer of wealth from debtholders to shareholders. Nevertheless, bondholders react more favorably to larger dividend changes consistent with the presence of a positive signaling effect. The conditional event study approach also provides the ability to test whether managerial hesitancy in cutting dividends may represent an additional source of expropriation. My results indicate that while bondholders are clearly harmed by these implicit dividend increases, evidence in support of shareholders' gains is mixed.Item Open Access Agency Problems and Cash Savings from Equity Issuance(University of Oregon, 2014-09-29) Anthony, Andrea; McKeon, StephenI examine the effect of ownership structure on firms' propensities to save the proceeds of a share issuance as cash. Specifically, I focus on changes in cash savings at the time of a seasoned equity offering (SEO), a moment at which the firm experiences a large inflow of cash, to determine whether ownership structures such as managerial blockholdings or the presence of institutional investors materially affect firms' decisions regarding their level of cash savings. I find that firms with managerial blockholders are more inclined to save share issuance proceeds as cash, relative to firms with outside blockholders or no blockholders present. This finding could be interpreted as consistent with either managerial entrenchment or incentive alignment, so I distinguish between these competing forces by examining SEO announcement returns. The market's reaction to SEO announcements when managerial blockholders are present is significantly worse on average when the firm has excess cash, lending support to the entrenchment explanation. I also find that firms with greater total institutional ownership save more cash from equity issuance, which is consistent with the theory that greater firm monitoring allows optimal corporate cash holdings to increase because shareholders are less concerned about potential misuses of cash.Item Open Access Company Stock in Defined Contribution Plans: Evidence from Proxy Voting(University of Oregon, 2014-09-29) Park, Heejin; Del Guercio, DianeThis study examines whether firms' decisions to offer company stock in defined contribution (DC) plans are explained by managers' corporate control motives. Using a large sample of proxy voting outcomes, I find that employee ownership in DC plans is significantly and positively associated with the level of voting support for management sponsored proposals. This suggests that managers encourage employee DC holdings in company stock in order to receive higher voting support in favor of management. The effects of employee ownership on voting outcomes are significantly greater in subsample tests than in full sample tests: management proposals opposed by Institutional Shareholder Services, management proposals of close votes, director election votes receiving more than 20% of votes withheld, and say-on-pay frequency proposals.Item Open Access Essays on Mutual Funds(University of Oregon, 2012) Genc, Egemen; Genc, Egemen; Boehmer, EkkehartMy dissertation consists of two essays on mutual funds. The first essay examines the role of extreme positive returns on future fund flows using maximum style-adjusted daily returns (hereafter MAX) over the previous month. My results suggest that there is a positive and significant relation between MAX and future fund flows. The results are robust to controls for fund performance, fund size, age, turnover, fund fees, volatility, and skewness of fund returns. Of particular interest, this relation exits only in retail funds. Moreover, MAX is persistent from one month to the next, but MAX-based investment strategies are associated with lower risk-adjusted returns than investors could have achieved in otherwise similar funds. Overall, my analysis suggests that mutual fund investors are attracted to maximum style-adjusted daily returns, which is in line with the theoretical argument that investors exhibit a preference for lottery-like payoffs. These investors are successful in achieving a lottery-like return profile, but this strategy is costly in terms of expected returns The second essay studies the effect of recent and long-term mutual fund performance on future fund flows. I document that investors' response to recent performance depends on average long-term performance. In particular, a recent loser fund experiences outflows only if its longer-term performance is also poor. Similarly, recent good performance leads to more inflows only if the fund has also good long-run performance. In contrast, investors ignore recent performance if it provides a signal that conflicts with the longer-term signal. This implies that good fund managers with a longer-term focus will find it easier to attract future inflows than managers with a short-term horizon.Item Open Access Impact of Product Market Competition on Expected Returns(University of Oregon, 2011-12) Liu, Chung-ShinThis paper examines how competition faced by firms affects asset risk and expected returns. Contrary to Hou and Robinson's (2006) findings, I find that cross-industry variation in competition, as measured by the concentration ratio, is not a robust determinant of unconditional expected stock returns. In contrast, within-industry competition, as measured by relative price markup, is positively related to expected stock returns. Moreover, this relation is not captured by commonly used models of expected returns. When using the Markov regime-switching model advocated by Perez-Quiros and Timmermann (2000), I test and find support for Aguerrevere's (2009) recent model of competition find risk dynamics. In particular, systematic risk is greater in more competitive industries during bad times and greater in more concentrated industries during good times. In addition, real investment by firms facing greater competition leads real investment by firms facing less competition, supporting Aguerrevere's notion that less competition results in higher growth options and hence higher risk in good times.Item Open Access The Disciplinary Effect of Subordinated Debt on Bank Risk Taking(University of Oregon, 2011-09) Nguyen, Tu CamUsing data for publicly listed commercial banks and bank holding companies around the world, I investigate the market discipline effect of subordinated debt on banking firm risk taking in the period 2002-2008. In addition, I examine whether this effect depends on national bank regulations and legal and institutional conditions. I provide evidence that subordinated debt has a mitigating effect on banking firm risk taking. Further, the results suggest a threshold level of national bank regulations and economic development above which subordinated debt mitigates risk taking. Overall, the evidence supports the efficacy of proposals calling for increased use of subordinated debt in banking firms.Item Open Access Seasoned equity offerings and market volatility(University of Oregon, 2011-06) Eom, ChanyoungNew equity shares are sold for raising capital via a primary seasoned equity offering (SEO). In their 2010 article, Murray Carlson, Adlai Fisher, and Ron Giammarino discovered an intriguing relationship between market volatility and primary SEOs, namely that the volatility decreases before a primary SEO and increases thereafter. This pattern contradicts the real options theory of equity issuance for investment. In this study, I examine in greater detail whether the pre- and post-issue volatility dynamics are related to the probability of issuing new equity. I find little evidence that the decision to conduct a primary SEO depends on changes in market volatility after controlling for previously recognized determinants of SEOs. This reconciles the volatility finding of Carlson et al. with the real options theory of equity issuance for investment. I also examine secondary SEOs, in which only existing equity shares are sold and therefore no capital is raised by the firm. For secondary SEOs, real options theory makes no predictions about risk changes around the events. I find that market volatility tends to decline before a secondary SEO, a finding which warrants further attention.