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Essays in corporate finance

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Title: Essays in corporate finance
Author(s): Laranjeira, Bruno d.
Director of Research: Campello, Murillo
Doctoral Committee Chair(s): Campello, Murillo
Doctoral Committee Member(s): Almeida, Heitor; Weisbenner, Scott; Bengtsson, Ola
Department / Program: Finance
Discipline: Finance
Degree Granting Institution: University of Illinois at Urbana-Champaign
Degree: Ph.D.
Genre: Dissertation
Subject(s): Corporate Finance Debt Maturity Initial Public Offering Institutional Investors
Abstract: This thesis presents two essays in Corporate Finance. In the first essay, I use the August 2007 crisis episode to gauge the effect of financial contracting on real firm behavior. I identify heterogeneity in financial contracting at the onset of the crisis by exploiting ex-ante variation in long-term debt maturity structure. Using a difference-in-differences matching estimator approach, I find that firms whose long-term debt was largely maturing right after the third quarter of 2007 cut their investment-to-capital ratio by 2.5 percentage points more (on a quarterly basis) than otherwise similar firms whose debt was scheduled to mature after 2008. This drop in investment is statistically and economically significant, representing one-third of pre-crisis investment levels. A number of falsification and placebo tests suggest that my inferences are not confounded with other factors. For example, in the absence of a credit contraction, the maturity composition of long-term debt has no effect on investment. Moreover, long-term debt maturity composition had no impact on investment during the crisis for firms for which long-term debt was not a major source of funding. Our analysis highlights the importance of debt maturity for corporate financial policy. More than showing a general association between credit markets and real activity, my analysis shows how the credit channel operates through a specific feature of financial contracting. In the second essay, I analyze how institutional investors choose which Initial Public Offering to invest. Using a sample of IPOs from 1980 to 2004, I show that the reputation of the lead underwriter is the most significant variable in this decision process. Using Carter-Manaster rankings of underwriter reputation, I report that a one point increase in the reputation ranking leads to a 2\% increase in institutional investors` holding. Moreover, I test hypotheses about what kind of certification the underwriter is providing. I provide evidence that underwriters certify un-measurable characteristics, in contrast to measurable characteristics, such as those provided in the financial statements of the issuer.
Issue Date: 2011-05-25
Rights Information: Copyright 2011 Bruno de Almeida Laranjeira
Date Available in IDEALS: 2011-05-25
Date Deposited: 2011-05

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