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Title:Essays in empirical corporate finance and banking
Author(s):Shahhosseini, Mehrnoush
Director of Research:Almeida, Heitor
Doctoral Committee Chair(s):Almeida, Heitor
Doctoral Committee Member(s):Bernhardt, Daniel; Pennacchi, George; Kahn, Charles; Deryugina, Tatyana
Department / Program:Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Empirical Corporate Finance
Abstract:This dissertation consists of four essays. The first article, entitled "The Unintended Consequences of Bank Stress Tests", analyzes the impact of recent bank examinations, known as stress tests on managerial decisions. Stress tests are assessments conducted by regulators to determine whether banks have sufficient capital buffers to withstand severe recessions. Unlike ordinary bank examinations, stress tests involve forward-looking scenarios, and their results are publicly disclosed. This paper is the first study to show the consequences of bank stress tests. My estimates indicate that there is a negative causal impact of capital adequacy requirements on managerial decisions in the U.S. banking system. Managers make real decisions regarding restructuring problematic loans or removing them entirely from their books. Stress-tested banks reduce net loan charge-offs and keep problematic loans on their books to a greater extent than banks in a non-tested group to meet the capital ratio requirements. Managers increase the level of non-performing loans in the aftermath of stress tests announcement. Stress-tested banks with greater exposure to the housing market change the classification of loan losses to a greater extent than other banks. The study's results remain robust using mid-sized banks that have been subject to the latest rounds of stress tests. The second essay, entitled "The Lift of the Trade Embargo and Corporate Policies: Evidence from the Immigrants' Network" studies the causal effect of foreign competition on corporate investment, cash holdings, financing and leverage decisions using the lift of the trade embargo against Vietnam as an exogenous shock to product market competition. I exploit the random allocation of Vietnamese refugees across the U.S. to establish the channels through which competition affects corporate policies, financing decisions, and capital structure. U.S. corporations underinvest and decrease leverage as a response to an increase in product market competition while increase research and development expenditures and cash holdings. The impact lasts for the twelve years after the lift of the trade embargo. Using a difference-in-differences method in combination with an instrumental variable approach, I show that the immigrants' network formed before the lift of the embargo is the channel through which competition affects corporate policies. Corporations incorporated in states with higher shares of Vietnamese immigrants cut their capital expenditures more than the corporations located in the states with a lower share of Vietnamese immigrants. In particular, the immigrants' network formed by Vietnamese refugees play a significant role in transmitting the foreign competition shock to the U.S. corporations. I find that the effect on capital expenditures exists only in textile industries in which Vietnamese refugees are more involved and not any other industries. The third essay, entitled "The Effect of Asymmetric Information on the Pricing of Equity Issuance" examines the adverse selection in the market for seasoned equity issuance. The asymmetric information can explain price reduction at the date of equity issuance. Corporations prefer to issue equity when the market is most informed about the quality of their company. This implies that equity issues tend to follow credible information releases. I exploit brokerage mergers as a natural experiment that affects information asymmetry through their effect on the extent of research coverage by sell-side equity analysts. The broker mergers cause brokers operation to be terminated, and the level of analyst coverage decreases for the firms previously covered by these analysts. I show when asymmetry in information increases, cumulative abnormal return is positive around the date of equity issuance and is larger for stocks which lost analyst coverage relative to the control group of stocks. Besides, affected stocks issue more equity after the merger event comparing to the control group. The final chapter entitled "The Role of Ownership in Privately Held Firms: Evidence from the Financial Crisis" provides new evidence on the relationship between ownership and corporate performance by exploiting a quasi-natural experiment from the recent financial crisis. I evaluate differences in the performance of privately held corporations using a new and unexplored data source on private firms in the US. I find that privately owned companies have a different performance depending on their type of ownership. Using the 2007 financial crisis as an exogenous shock to the firm's liquidity, I show family owned firms outperform non-family owned companies in the aftermath of the crisis while family firms have lower revenue in the regular periods. The empirical methodology employs a difference-in-differences method to compare the revenue and employment growth of family owned versus non-family owned firms controlling for time-invariant and firm-specific effects. The negative impact of the financial crisis is larger on the non-family companies since these companies depend more on the source of private financing from private equities and venture capitals while family-owned firms are more likely to use their personal wealth to overcome the crisis. Overall, the results suggest that the intrinsic characteristics of family-owned companies enable them to conquer the liquidity shortage during the crisis. Having long-term investment horizon, risk aversion, and conservative behavior. Moreover, the existence of lower agency cost in family-owned firms helps them to overcome the negative consequences of the crisis and are the key to their success. Also, I conduct placebo tests to show the outperformance result of family-owned firms appears only in the aftermath of the crisis and not in other normal periods.
Issue Date:2016-04-20
Rights Information:Copyright 2016 Mehrnoush Shahhosseini. All rights reserved.
Date Available in IDEALS:2016-07-07
Date Deposited:2016-05

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