Essays in Corporate Finance

Abstract

This thesis examines three important issues of corporate finance. The first essay discusses the effect of bank merger event on the labor market and the second and third essay discuss the troll-like patent litigation, which is a new phenomenon in the finance literature.

The U.S. market for corporate control has grown strongly over the last decade, with the annual number of mergers and acquisitions (M&As) rising steadily over that time. This growth, combined with concerns around wage stagnation, income inequality, and intensifying employer concentrations, has seen antitrust authorities, legislators and U.S federal courts increasingly focused on labor markets, in particular labor practices and monopsony market power in mergers. Central to their interest is whether merger synergies achieved from business consolidation, such as redundancy removal or market expansion, pass through labor forces (Synergy hypothesis) or, rather, mergers strengthen employer power, limit the bargaining power of employees and place a downward pressure on wages (Monopsony hypothesis). The divergence of these theoretical predictions make it imperative and policy-informative to understand whether, and under what circumstances, synergy realization is large enough to dominate monopsony market power. Against this backdrop, the first essay investigates the impact of commercial bank mergers and acquisitions (M&As) on the local labor markets. It finds that the bank M&A events have a positive spillover effect on the local bank wages. This effect is most pronounced in the high-synergy mergers, in markets that are competitive, and in markets that are dominated by acquirers, large banks, or national peers. Our results are robust to controlling for the endogeneity of M&A events and the effect of local economic conditions. Taken together, our findings provide evidence that merger synergies dominate monopsony power in commercial bank wage determination.

The second essay investigates the impact of non-practicing entity (NPE) patent litigation on the delisting of the firms in the U.S. stock market. NPEs or "patent trolls" are the entities who do not own patents for the purpose of producing or selling the goods. They purchase the patent right for the sake of receiving the fee or commission. They exploit this right by sporadically sending demand letters to the patents alike. Using a sample of high-tech and patent intensive firms from the U.S. market between 2000 and 2019, we find that the frivolous patent trolling by the NPEs is positively associated with the delisting decision of the defendant firms. This result is more pronounced when the firms are small, young, under distress and experience negative sentiment in the market. The causality of this relationship is ensured by using the Anti-troll law targeted to curb the threat of NPE trolls. We also find that this effect is influenced by the cost of NPE litigation and that going private can significantly mitigate the threat of NPE trolls.

The third essay investigates the impact of media coverage on the nonpracticing entity (NPE) patent litigation to the defendant firms. Using a sample of high-tech and patent intensive firms from the U.S. market between 2000 and 2019, it finds that the highly visible firms are vastly targeted by the NPEs. This result is more pronounced when the firms are large and experience positive sentiment in the market. We ensure the causality of this relationship by using Anti-troll law targeted to curb the threat of NPE trolls as a natural experiment and distance from the nearest news branch as an instrumental variable. We also find that after suing the target firms, the return of the plaintiff or the NPE firm goes up. In contrast, threat of NPE litigation reduces the return of the defendant firms. Show more