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Two essays in corporate finance

Low, An Chee
http://rave.ohiolink.edu/etdc/view?acc_num=osu1186598647

Abstract Details

2007, Doctor of Philosophy, Ohio State University, Business Administration.
Problems of endogeneity often cloud interpretation in corporate governance research. In this dissertation, I make use of changes in takeover laws as exogenous shocks to examine how managers react to a weakening of the corporate governance structure. In the first essay, I examine how the increased protection from hostile takeovers affects managerial incentives to change firm risk, while in the second essay I examine how firm size and firm investment behavior changes in response to the exogenous shocks. In both cases, I find that managers take actions that are beneficial to themselves but are detrimental to shareholders. Empirical evidence in the first essay show that risk-averse managers decrease firm risk in response to an exogenous increase in takeover protection in Delaware during the mid-1990s. I also find that the decrease in firm risk is concentrated among firms with low managerial equity-based incentives. Further, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking. Overall, the evidence supports the hypothesis that equity-based compensation can be used to align managerial interests with that of shareholders. In the second essay, I find that managers increase their firm size in response to the increased protection from hostile takeovers. The increase is predominantly among firms with low growth and high cash holdings which are exactly the firms where the agency costs of free cash flow are most costly to shareholders (Jensen, 1986). I also predict important differences in managerial empire-building through internal investments versus external acquisitions in the 1980s and 1990s based on changes in stocks and options-based incentives. Consistent with my predictions, managers prefer to empire-build through internal investments during the 1980s, while in 1990s they choose to grow more through external acquisitions.
Anil Makhija (Advisor)
172 p.
Corporate governance; Staggered boards; Equity-based compensation; Managerial risk-taking; Mergers; Investments; Empire-building

Recommended Citations

Citations

  • Low, A. C. (2007). Two essays in corporate finance [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1186598647

    APA Style (7th edition)

  • Low, An Chee. Two essays in corporate finance. 2007. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1186598647.

    MLA Style (8th edition)

  • Low, An Chee. "Two essays in corporate finance." Doctoral dissertation, Ohio State University, 2007. http://rave.ohiolink.edu/etdc/view?acc_num=osu1186598647

    Chicago Manual of Style (17th edition)

osu1186598647
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© 2007, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.