Three essays in corporate finance

Abstract

Chapter 1 investigates the impact of the market for corporate control on firm-level organization capital. I use the enactment of antitakeover laws as an exogenous decrease in the disciplinary effect of the market for corporate control. The results show that organization capital decreases after the enactment of antitakeover laws. These results are verified through various endogeneity and robustness tests. I find that the enactment of antitakeover laws has a less pronounced impact on brand capital and R&D. Also, stronger corporate governance mitigates the decrease in organization capital. I show that this decline in organization capital contributed to the decline in firm value after enactment of antitakeover laws. Moreover, I find that reductions in the inflow of inventors, total factor productivity and labor mobility are possible mechanisms through which antitakeover laws impact organization capital.

Chapter 3 investigates the relative impact of economic policy uncertainty on real and financing decisions for single-segment and diversified firms. I show that policy uncertainty decreases the diversification discount and improves the efficiency of internal capital markets. Using segment-level data, I find that that policy uncertainty is more likely to reduce capital expenditures of single-segment firms relative to diversified firms. In particular, the impact of policy uncertainty is reduced by unrelated diversification, and more pronounced during periods of higher uncertainty and for firm financially constrained firms. Also, core segments and segments in politically sensitive industries are more affected by policy uncertainty. Using quarterly data, I find that diversified firms are more likely to increase intangible capital and cash holdings and reduce payouts and debt issues. Overall, this study shows that corporate diversification significantly influences the impact of economic policy uncertainty on corporate decisions. Importantly, accounting for diversification is necessary to get a more complete understanding of the impact of economic policy uncertainty at both the firm and aggregate levels.

Chapter 2 investigates the impact of the stock-price formation process on payout policy using the Regulation SHO pilot program which removed short selling constraints and increased the prospect of short selling for a random sample of pilot firms. I find that pilot firms are more likely to increase dividends and repurchases during this pilot program. Subsequent to the ending of the program, these firms continue to pay dividends. Consistent with signaling and agency-based models, the results are more pronounced for firms with higher information asymmetry and weaker governance. Importantly I find that pilot firms are less likely to smooth dividends and that dividends or repurchases are more likely to be debt-financed when the prospect of short selling increases. Overall, this study shows that stock price dynamics within the secondary financial market have a significant and long-lasting impact on firms’ payout policy.

This dissertation consists of three distinct essays in the corporate finance area that examine the impact of policy changes on corporate decisions relating to organization capital and payout policy, and diversified firms. The first essay uses the enactment of antitakeover laws to investigate the impact of corporate governance on organization capital. The second essay examines the impact of financial markets on payout policy using a regulatory change to short selling. The third essay studies the impact of economic policy uncertainty on diversified firms relative to single-segment firms.