Three Essays in Corporate Finance

Abstract

This thesis consists of three chapters about three aspects of corporate finance. In the first chapter titled "Do You Have Any Questions? Revealing Analyst Attention to CSR", we study financial analysts' attention to corporate social responsibility (CSR) activities from the questions asked during earnings calls. Data show that analysts' questions related to CSR issues are only observed in 1% of earnings calls, most of which concern environmental issues, employee relations, and community engagements. Analysts are more likely to ask CSR questions if related issues are discussed in the management presentation or when the financial performance is disappointing. Yet, negative CSR questions induce more positive market valuations, consistent with an uncertainty resolution effect. At the firm level, the likelihood of CSR questions is highly persistent across firms. And the type of questions asked is closely related to a firm's nature of business. By tracking the analysts, we observe that the likelihood of CSR questions can also be attributed to coverage by CSR-conscious analysts. Although analysts' CSR questions resolve uncertainty, our findings underscore that their attention to CSR issues is selective and deserves more investigation.

In the second chapter titled "Corporate Social Responsibility, Local Seniors, and Corporate Dividend Policy", we investigate whether corporate social responsibility affects the relationship between investors' dividend demand, measured as the fraction of people aged 65 and above residing in the same county as firm headquarters (local seniors), and corporate dividend policy. We argue that firms are motivated by social responsibility, more specifically, that firms with stronger CSR will be more responsive to the demand for dividend income from local seniors. Consistent with our prediction, we show that the effect of local seniors on corporate dividend policy is 24.8% stronger in high-CSR firms than in low-CSR firms. Our results are robust to the choice of both our dividend and CSR measure as well as to the use of propensity score matching and instrumental variable analysis to address potential endogeneity concerns. By revealing the motivation for firms to respond to local seniors' dividend demand, our study provides additional support for the dividend catering theory.

In the third chapter titled "Political Risk and Political Engagement", we explore how firms adapt their political engagement strategies in response to firm-level political risk. We find that firms tend to increase political activities as a way to mitigate political risk while reducing operational activities. In particular, when facing high political risk, firms engage in greater lobbying efforts and introduce board members with political connections. We also find that a trade-off exists between lobbying and hiring politically connected board members, depending on firms' business nature and government regulations. Generally, firms that are more sensitive to policy changes are more likely to engage in lobbying activities, while firms reliant on government contracts tend to prefer bringing in additional board members with political connections. Notably, following regulatory changes after the financial crisis, banks increased the hiring of board members with political connections. Our findings remain robust after controlling for non-political risk and addressing endogeneity issues. Show more