Two essays in finance

Oh, Eunji

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https://hdl.handle.net/2142/105779 Copy

Description

Title

Two essays in finance

Author(s)

Oh, Eunji

Issue Date

2019-07-03

Director of Research (if dissertation) or Advisor (if thesis)

Johnson, Timothy C.

Doctoral Committee Chair(s)

Johnson, Timothy C.

Committee Member(s)

• Choi, Jaewon
• Kiku, Dana
• Chan, Louis K. C.

Department of Study

Finance

Discipline

Finance

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

Asset Pricing, Innovation, Intangibles, Financial Constraints

Abstract

The first essay examines whether systematic equity risk of firms reflects the risk of their R&D strategies at various angles. More novel R&D strategy is risky because it can be related to more extreme outcome. This risk could indirectly affect the firm’s systematic risk. In the case of success of the strategy, the productivity of technologies developed by novel R&D strategy could be procyclical; thus public firms with more novel technologies could be more subject to the aggregate risk. To investigate this problem, I devise an ex-ante measure for the novelty of innovation, Tech Synthesis Level (below TSL), which quantifies the degree that new technology is drawn from prior technologies in the far different technological fields, using patent citations. I find that patents with high TSL are associated with more extreme technological outcomes both at patent-level and startup-level. At public firm analyses, I find that high TSL is associated with high abnormal returns by 2.532 percent (annualized) and high systematic volatility. These findings support the hypothesis that a failure probability of the R&D project increases systematic risk. I also find evidence that high TSL patents are technologically more productive when aggregate innovation is very active, so firms with high TSL patents are subject to high systematic equity risk. The second essay studies the effect of intangible collateral, which has gradually increased since the ’90s, by testing hypotheses inspired by [Ai et al., 2018]’s collateralizability premium. Firms with more collateralizable capital have lower stock returns due to the insurance effect of the capital during economic recessions when financial constraints get tighter. If intangible collateral also can relax financial constraint, firms with intangible collateral are expected to have lower stock returns than the other similar firms without collateralizable intangible capital. I add empirical evidence by using Dealscan data of US-originated secured long-term loans. I find that firms using intangibles as collateral in addition to traditional collateralizable assets have higher stock returns than the other firms pledging only tangible assets to secure corporate loans. Also, they could achieve the similar or even slightly higher level of leverage, implying intangible collateral also can relax financial constraint. This is not assumed possible in many theoretical and empirical studies. Even with matching analysis I find that firms pledging intangible capital as collateral still have higher stock returns than the other similar firms without intangible collateral. The empirical evidence I find does not fully support the collateralizability premium hypothesis.

Graduation Semester

2019-08

Type of Resource

text

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http://hdl.handle.net/2142/105779

Copyright and License Information

Copyright 2019 Eunji Oh

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