Three essays in corporate finance
Date
2023
Authors
Hoang, Thao
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
This thesis consists of three essays focusing on three distinct aspects of corporate finance that have not been fully examined in the literature. In each aspect, the thesis attempts to explore the role of key decision makers in shaping corporate outcomes. The first essay concentrates on top management team while the other two focus on directors.
The first chapter "Managerial Heterogeneity in Risk-Taking Incentives: How Does It Affect Firm Risk and Performance?" examines an unexplored dimension of managerial risk-taking: heterogeneity in risk-taking incentives among top executives. When top managers collectively make important decisions, the heterogeneity may lead to conflicts between self-interested managers, consequently affecting corporate decisions and performance. Consistent with this premise, the chapter finds that firms operated by top managers with more divergent risk-taking incentives tend to take fewer risks and suffer inferior performance. The chapter also explores the mechanisms of those effects: more divergent risk-taking incentives are associated with attenuated investment efficiency, lower R&D, and less likelihood of M&A transactions. The findings underscore the notion that the efficiency of corporate decisions depends not only on the average level or strength but also on the divergence of managerial risk-taking incentives.
The second chapter "Common Lender, Ex-Banker Director, and Corporate Investment" examines how a common lender affects its borrowers' outcomes. Due to the government-driven mergers of large banks, many competing firms in Japan resulted in borrowing from a common lender. Investments of competing firms that have a common lender decrease by 15% of the mean. When a common lender can exercise its voice through its former employees serving as firms' executive directors, investments further fall significantly. Competing firms that share a common lender increase markups and profitability ratios, suggesting the lender induces strategic coordination among its borrowers to reduce their competitive pressures. These effects are stronger for distressed firms, and firms use saved resources from reduced competition for cash cushions.
The third chapter "Polarized Corporate Boards" investigates how political polarization in corporate boards influences the decision to fire a CEO. The analysis shows that political polarization among directors negatively impacts corporate board effectiveness by reducing the CEO forced turnover-performance sensitivity. The results are more pronounced in presidential election years and for firms with more monitoring and advising needs. Polarization also increases the departure likelihood for directors who are ideologically distant from the rest of the board, making boards more politically homogeneous over time. Finally, the chapter shows that polarization in the boardroom lowers firms' investment-Q sensitivity and environmental performance. These findings highlight the real economic cost of political polarization.
Description
Keywords
Citation
Collections
Source
Type
Thesis (PhD)
Book Title
Entity type
Access Statement
License Rights
Restricted until
Downloads
File
Description
Thesis Material