Three essays in corporate finance

Gao, Yang (2023). Three essays in corporate finance. University of Birmingham. Ph.D.

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Abstract

The thesis includes three essays in empirical corporate finance. The first essay of the thesis investigates the effects of firms' individual risks of experiencing a stock price crash on aspects of the market for corporate control. For a large and expansive sample of U.S. firms, the empirical results in this study provide robust evidence to suggest that higher crash risk leads to greater takeover target likelihood. This causal effect is also more pronounced for poorly performing firms, giving richer insights into the notion that the correction of managerial performance is a stimulus for the market for corporate control. Furthermore, takeover targets with higher crash risk receive lower premiums. Finally, crash risk in takeover targets increases the percentage of stock in takeover payment and the likelihood that stock is the sole method of payment. Overall, empirical findings suggest that activity in the market for corporate control is at least partially motivated by acquisitions at bargain prices. The second essay exploits the NO_x Budget Trading Program (NBP) that aims to mitigate NO_x emissions in midwestern and southeastern U.S. states, as a quasi-natural experiment to investigate the impact of climate policy on firms’ decisions to distribute their cash flows and the choice between their outgoing cash flow taking the form of dividends or stock repurchases. The empirical results show that manufacturing firms headquartered in NBP-participating states significantly reduce share repurchases, whereas the NBP effect on cash dividends is insignificant. Further analysis indicates that the adoption of the NBP program significantly increases cash flow uncertainty, providing richer insights into the notion that climate policy uncertainty is an important source of cash flow risk. Finally, the NBP effect is more pronounced for firms facing a higher degree of product market competition and for firms with more exposure to business uncertainty shocks. Overall, empirical findings suggest that the compliance costs associated with climate policy have implications for how firms make decisions in relation to payout choice. The third essay investigates effects of managerial academic experience on aspects of mergers and acquisitions (M&As). Using a sample of Chinese listed firms, empirical results show that firms led by managers who have come from academia are more likely to pursue M&As than those with non-academic managers, which is in line with the notion that cognitive bias induced by higher social status motivates academic managers to participate in riskier acquisition activities. Furthermore, M&As initiated by academic managers are associated with lower short-term cumulative abnormal returns. The post-performance analysis shows that acquirers with academic managers are associated with lower long-term stock performance than those with non-academic managers. These findings suggest that academic managers lack practical experience in the business world, which leads to value-destroying M&A decisions. Overall, this study provides new insights into the relevance of the senior management team's academic experience with regard to shareholder wealth.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

Supervisor(s):