1,720,992 research outputs found
Three Essays on Corporate Debt
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.This dissertation studies the behaviors of banks and borrowing firms in the corporate debt markets. The first essay examines the probability of exit for different types of investors in the syndicated loan market, as well as how the entry and exit of different types of investors is associated with changes in loan characteristics. Nonbanks, particularly CLOs, closed-end funds, and mutual funds, are more likely than bank lenders to exit the syndicate rather than to participate in the renegotiated loan. For mutual funds, greater net fund outflows imply a greater likelihood of exit, and this finding is consistent with nonbank lending creating greater systemic risk (Stein, 2013). For most nonbanks, the likelihood of an exit increases if the financial condition of the borrower improves and the potential for higher spreads wanes. Controlling for borrower risk, the addition of most nonbank institutions, in contrast to banks, is accompanied by an increase in loan spreads, but no significant increase in the number or tightness of covenants. The second essay explores the variation in maturity of new debt issues and examines firms' substitution between private and public debt. Prior literature suggests that both debt maturity and debt choice are endogenously determined by common firm fundamentals. Using instrumental variable analyses and simultaneous equation estimation, this study isolates the exogenous component of the debt maturity and choice of debt sources. Borrowing firms' asset maturity and effective tax rate are used to instrument for the debt maturity, while bank competition and bank liquidity in the borrowers' state are used to instrument for the debt choice. This study provides evidence for causality in both directions; firms which seek to increase the borrowing term by one standard deviation (equivalent with 5 years for an average debt issue) are 8% less likely to choose private bank loans, while firms which prefer private debt to public source tend to have shorter maturity by 49 months. The third essay analyzes the determinants and implications of confidentiality strictness in loan credit agreements. Borrowing firms which have higher R&D and operate in more competitive product markets have tighter confidentiality policies. Furthermore, confidentiality strictness is negatively associated with the probability of a loan including financial covenants, especially capital-based covenants. Loan contracts for borrowing firms with stricter confidentiality, on average, are more relaxed, as evidenced by fewer covenants and a lower ex-ante probability of covenant violation. The results remain robust with the inclusion of various measures of market competition, suggesting that confidentiality strictness reflects unobservable strategic information pertaining to borrowing firms' potential exposure to the competitive environment. This greater sensitivity to competition improves corporate governance and consequently loosens bank loan monitoring.Financ
Exchange traded funds and market efficiency
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.Given the exponential growth of Exchange Traded Funds (ETFs) and their increasing importance in financial markets, I examine four issues related to these securities. I find that price discovery flows consistently from U.S. industry ETFs to their Canadian counterparts, while volatility spillovers are largely bi-directional. I also examine the informational efficiency of size-based U.S. ETFs and comparable CRSP portfolios. Variance ratio analysis demonstrates that return autocorrelations have diminished significantly over the past decade, while Granger causality tests reject the presence of lead-lag effects among size-based ETFs. However, volatility spills over from large firm ETFs to those of smaller firms, and these spillovers extend to ETF option implied volatilities. In the third chapter, a simple model of trading is developed for securities that are included in ETFs. These securities have become a significant factor in the volatility generating process of their largest component stocks since volatility spillovers from ETFs to their largest component stocks are economically significant. These spillovers are increasing in liquidity, the proportion of each stock held by the fund, deviations from net asset value, ETF flow of funds, and ETF market capitalization. Finally, Chapter Four examines the presence of common factors in the evolution of stock option implied volatilities. I analyze the implied volatilities of ETF options and those of their largest component stocks, and the results strongly suggest the presence of both a market volatility factor and an industry volatility factor. The drivers of implied volatility spillovers from ETFs to component stocks are strongly related to turnover in S & P 500 ETF options and those of SPDR industry sector ETFs.Financ
Essays on state pension plans and trading in bankrupt stocks
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.This dissertation consists of two essays on suboptimal behavior of financial markets. Essay I examines stocks of bankrupt firms after the court confirms they will receive nothing. While trading volume is negligible for most worthless stocks, some have sizable trading volume, indicating investor ignorance of their zero intrinsic value. Prices respond irrationally to news in several instances, and they are higher for more liquid worthless stocks, which are more likely to attract uninformed investors. Our analysis includes the first empirical examination of short-selling in bankrupt firms. Short-covering cannot account for the anomalous price and trading volume. Short-sellers are active in these stocks and play a useful role in pushing prices down toward intrinsic value. Essay II examines the effects of state corruption as well as political and governance factors on U.S. public pension funds. We find that pension funds in states with more corruption have lower performance; a one standard deviation increase in corruption is associated with a decrease in annual returns between 17 and 21 basis points, and this relation is robust to state-level and pension-level fixed effects. Pensions located in more corrupt jurisdictions also invest a larger fraction of their assets in equities. We find that having a new treasurer decreases the negative effects of corruption, suggesting that frequent changes in administrations are beneficial in corrupt jurisdictions. Governance-related variables and political affiliation variables are by themselves not significantly related to pension returns, although these variables are associated with differences in asset allocation.Financ
Three essays on financial management
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.This dissertation consists of three chapters that examine firm's financial management. Chapter one studies the impact of regulatory protection for minority shareholders during minority buyouts. Specifically, we find that a reverse book building process implemented in India in 2003 has increased the gains to minority shareholders. Chapter two examines the impact of off-balance-sheet hedge on firm value. We report a negative relation between firm value and duration gap. Chapter three examines whether the capital structure theories developed in Western countries apply to Chinese listed companies. We find that Chinese companies' financing behaviors are becoming more akin to those in the developed market with increasing integration and financial liberalization.Financ
Directors and Officers liability insurance: Analysis of disclosure effects and other implications
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.Directors and Officers liability (D&O) insurance is used extensively in top management compensation. This insurance reduces the financial liability of top management arising from lawsuits, especially shareholder lawsuits. According to a survey by Towers Perrin, 99% of their surveyed U.S. firms buy D&O insurance for their officers and directors. Surprisingly, only a handful of firms listed in the US disclose their D&O insurance practices (based on my extensive search of publicly available databases on corporate disclosure). In addition, there is ample evidence that a large number of firms provide coverage beyond the level justified by the economic theory on normal corporate insurance (Kim, 2005). Such corporate practices raise at least two important questions. First, what factors determine the disclosure of D&O insurance? Second, why do some firms insure their officers and directors for amounts that exceed the level justified by the economic theory on corporate insurance?
This study provides insights into both questions. Using a sample of firms from 2004 to 2008, I focus on level of competition, threat of increase in lawsuit costs, firm's ability to pay damages, internal governance, and level of external monitoring to examine the discrepancies in disclosure. Consistent with the hypothesis, the results show that firms in competitive industries, firms with a high probability of lawsuits, big firms, firms with weak internal governance, and firms with high institutional holdings are less likely to disclose D&O insurance. In addition, I examine the implications of the purchase of abnormal D&O insurance on firm performance. For this aspect of the analysis, I draw from the literature on optimal contracting and examine the relation between abnormal D&O insurance and aggressive firm reporting, aggressive project selection, and firm's profitability. The results show that abnormal D&O insurance is positively associated with aggressive reporting, aggressive investment activity, and abnormal profit performance.Accountin
Three essays on market frictions and prices
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.During the last decade there have been significant changes in market structure as well as in the regulatory framework. New regulations require firms to disclose more information in a timely manner. Simultaneously, quantum improvements in computer networks have increased the speed of information flows and facilitated explosive growth in trading volume. In light of such changes, I examine three important questions regarding how security pricing has responded to recent changes in market frictions.
Given the rise of automated trading in the post-decimalization era, we examine time trends in price clustering for exchange traded funds (ETFs) and individual stocks during 2001 – 2010. There is limited prior evidence on price clustering for portfolio securities such as ETFs. A striking feature of the evidence is the substantial reduction in clustering over the sample period for ETFs as well as for individual stocks. This decline occurs for trades of all sizes. We attribute the decline in clustering to the increasing prominence of algorithmic trading, which is immune to psychological biases.
The second chapter examines the impact of a firm’s disclosure patterns on its cost of debt. Using data on current report (Form 8-K) filings, we examine firms’ information disclosure behavior prior to debt issuances and the resultant impact on the cost of debt capital. We find that firms increase their current report filing frequency as the debt issuance approaches; this tendency is more pronounced for public debt issues compared to private debt issues. Among public debt issuers, the increase in disclosure is greater for high-yield debt versus investment-grade debt. Analysis of yield spreads of high-yield debt reveals that more disclosure reduces the cost of debt. These results further suggest that debt issuing firms find current report filing as an economic and useful way to improve the information environment.
Finally, chapter three investigates stock market reactions to 8-K reports filed under the new regime in the specific context of acquisitions of privately held target firms by public acquirers. This paper finds that 8-K disclosures filed by public acquirers have a material impact on the pricing and the trading of the acquirers’ shares around the event date and the SEC filing dates. Further, we find that this impact is economically significant even for targets classified as “insignificant” by the SEC. We find no significant effects related to the pre-event information transparency of the acquirer.Financ
Essays on Dividend Mispricing, International Loan Renegotiations, and Pricing Loan Covenants
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.This dissertation studies the mispricing of acquirer dividends in M&A deals, examines the renegotiation likelihood of international lenders in syndicated loans, and proposes a new methodology to value loan covenants. The first essay explores the mispricing of ordinary dividends during an all-stock M&A transaction. Stock prices of targets in all-stock merger deals should reflect acquirer share values, net of expected dividend payments before deal completion. If target stock prices have fully anticipated acquirer dividend payments, target stock returns on the acquirer ex-day should be unaffected. Instead, I find that they are negatively related to the size of acquirer dividends. The delayed adjustment to acquirer dividends implies overvaluation of target stocks immediately after the merger announcement. These results are robust to different regressions specifications, subsamples, and falsification tests. In the second essay, I analyze which macroeconomic factors cause international lenders to drop out of syndicated loans. Increases in capital requirements in the lender country and decreases in borrower country policy rates imply a greater likelihood that foreign lenders stop supplying capital in international syndicated loans. These results are robust to the inclusion of borrower country, lender country, and borrower-round fixed effects. Using lender country capital regulations as instruments, I find evidence of significant economic spillover effects as international lender exits imply smaller loan amounts and shorter maturities. My third essay uses an option pricing model framework to determine the value of loan covenants. Private debt contracts frequently include financial covenants which facilitate the transfer of control rights to the lender in the event of a default. I show that the value of covenants in private debt contracts can be determined using an option pricing model. Using the Debt to EBITDA covenant in a sample of U.S. loan contracts, I find that firms with more assets, higher market to book ratios, and better credit ratings are associated with less valuable covenants. The economic value of the Debt to EBITDA covenant using the option model is 17 bps on average, significantly different from the 97 - 160 bps estimated by alternative pricing models currently used in the literature.Financ
Essays on CEO Compensation, Confidential Voting and Cost of Debt, and Dual Holding and Loan Structure
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.In chapter one, I examine firms that receive a shareholder proposal to see whether firms shift their executive pay so as to provide more deferred compensation and less cash when the firm is under scrutiny. After a shareholder proposal, we find an increase in performance-based compensation, as well as a decrease in annual salary; however, total compensation does not change significantly.
In chapter two, we examine the effect of confidential voting on voting outcomes and the cost of debt. We hypothesize that when firms do not allow for confidential voting, management follows a more self-dealing strategy. We find that, in the absence of confidential voting, firms with institutional dual holders have more votes for proposals. Further, firms with confidential voting in place have a lower cost of debt and this relation is stronger for firms with dual holders. The results are consistent with management trading a higher cost of debt.
In chapter three, we investigate the role of dual holder investors on loan contract. We try to see if the presence of dual holders in firms affects the selection of the optimal loan contracts. We find that the presence of dual holder and particularly commercial bank dual holder decreases the cost of the loan, increases the likelihood of the inclusion of dividend, financial or asset sweep covenants and makes the minimum current ratio covenant tighter. Therefore, lower cost of debt is achieved in the price of the less flexibility for firm's future activity. This is consistent with trade-off theory.Financ
Three essays on the dark side of managerial compensation
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.My three essays examine some consequences of managerial compensation structures on shareholders' value and corporate investment decisions. In the first essay, I examine the market response to the announcement of option backdating scandal and report market reaction of unexpectedly small magnitude. I compare the characteristics of option backdating companies to a group of control firms with comparable features in my second essay. I find that backdating firms are younger and more volatile in operating performance but do not necessarily exhibit weaker structures of corporate governance. In the last essay, I examine the presence of managerial overconfidence based upon CEO's option exercising decision and propose a metric to measure it. I provide evidence that the investment behavior of overconfident CEOs exhibits greater sensitivity to cashflows.Financ
Three essays on the effects of externalities in finance
No full textThis item is available only to currently enrolled UTSA students, faculty or staff. To download, navigate to Log In in the top right-hand corner of this screen, then select Log in with my UTSA ID.I examine the effects of three externalities in finance: law, health, and behavior. First, I consider the impact of securities class action lawsuits on firms' investment and financing choices. I find that lawsuits appear to have more than just deterrent or redistributive effects; on average these lawsuits appear to change firm behavior towards better governance, greater focus, and lower overinvestment. Next, I consider the impact of influenza on stock market trading. Increasing flu incidence in the greater New York area is associated with lower stock trading activity, widening bid-ask spreads, and reduced volatility; increasing flu incidence in the U.S. as a whole is associated with widening bid-ask spreads and lower stock returns. The impact of New York flu is consistent with fewer traders and reduced information production as institutional investors and market makers are absent; the impact of overall U.S. flu is consistent with reduced liquidity and decreased expectations about real economic activity. Last, I consider the impact of correlated investor sentiment on the tracking errors (unexplained returns) of exchange traded funds (ETFs). The unexplained returns on ETFs pre-ranked as more likely to be impacted by sentiment are correlated with each other, correlated with extant measures of investor sentiment, and correlated with the returns on portfolios constructed to have high concentrations of individual investors. Overall, the findings in this dissertation suggest that law, health, and behavior externalities are informative and considering the effects of these externalities may be appropriate in certain financial models.Financ
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