Three essays in corporate finance

Corporate finance, corporate governance

Kim, Hwanki Brian

关键词: Corporate finance, corporate governance;   

Others  :  https://www.ideals.illinois.edu/bitstream/handle/2142/101341/KIM-DISSERTATION-2018.pdf?sequence=1&isAllowed=y

美国|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

In the first chapter, using new patent-based industry-level measures of the horizons and values of corporate investment, I find that in response to an increase in long-term institutional ownership firms reallocate their capital toward divisions with long product life-cycle and high innovation value, which leads to longer corporate investment horizons and higher investment values at firm level. To disentangle investors' effects from spurious correlations, I employ a widely-adopted identification strategy based on the discontinuity in long-term ownerships around Russell 1000/2000 index thresholds. The effects are strongest among firms with more undervaluation. I also document a possible channel through which investors affect corporate investment horizon - the managerial incentive channel. These results are consistent with the horizon alignment hypothesis that long-term investors could mitigate inefficient corporate short-termisms in real investment decisions among undervalued firms.In the second chapter, we show that Korean business groups, chaebol, reduced (increased) investment in risky (safe) member firms in the aftermath of the 1997 Asian financial crisis. Risk reduction was accompanied by capital reallocation from risky member firms to safe member firms through equity investments. Consequently, chaebol reduced investment to a lesser extent than otherwise similar stand-alone firms did while reducing risk to a greater extent. Risk reduction was stronger among chaebol with greater variability in risk across member firms and with greater dependence on external financing . Our results suggest that within-group risk variability along with internal capital markets enabled chaebol to effectively reduce risk in response to the increased cost of external financing.The final chapter documents a new cost of insider ownership; we call this the minority-alignment cost. This cost arises when a higher share of insider ownership incentivizes the insider to act in the best interest of a minority of shareholders. These actions thus hurt the interests of the majority of shareholders and therefore reduce firm value. We document evidence consistent with this cost of insider ownership using a natural experiment created by the 2012 presidential election and the impending fiscal cliff. In this setting, insiders (who are subject to dividend taxes) had a personal incentive to pay out large special dividends, and this incentive was stronger for insiders who owned larger shares of their firms. We show that when insider ownership was high, firms were less responsive to tax incentives of their investor base (i.e., the fraction of taxable vs. non-taxable shareholders). Moreover, when there was greater misalignment (high insider ownership combined with high ownership by non-taxable investors), these decisions had higher negative valuation implications and often reduced firm value.