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Three Essays in Corporate Finance

Taillard, Jerome Philippe Alain
http://rave.ohiolink.edu/etdc/view?acc_num=osu1267652386

Abstract Details

2010, Doctor of Philosophy, Ohio State University, Business Administration.
In my dissertation, I first contribute to the capital structure literature by estimating the potential impact of financial distress on a firm's real business operations. Secondly, I contribute to the ownership structure literature, and more broadly to the field of corporate governance, by revisiting the relationship between managerial ownership and firm performance. In my first essay, I analyze a comprehensive sample of defendant firms that found themselves exposed to an unexpected wave of asbestos litigation in the wake of two U.S. Supreme Court decisions. Since these legal liabilities are unrelated to current operations, firms that are in financial distress due to their legal woes provide a natural experiment to study the impact of financial distress on a firm's operational performance. When analyzing firms suffering from this exogenous shock to their finances, I find little evidence of negative spillover effects ("indirect" costs) of financial distress. That is, the competitive position of the distressed firms is not adversely impacted by their weakened financial situation. Furthermore, I find empirical support for a significant disciplinary effect of financial distress as these firms actively restructure and refocus on core operations. In my second and third essays, I focus on the relationship between managerial ownership and firm performance using a large panel dataset of U.S. firms over the period 1988-2004. In the second essay, I reconcile some of the extant literature by showing that the relationship is sensitive to the firm size characteristics of the sample being used. In particular, I recover the classic hump-shaped relationship when focusing only on the largest firms (e.g. Fortune 500 firms), while the relationship turns negative when the sample is comprised of smaller firms. The negative relationship among smaller firms is consistent with entrenchment arguments given that managerial ownership is on average much higher for small firms. Second, I find that for lower levels of managerial ownership, the negative relationship is driven by older firms that have on average less liquid stocks. This finding is consistent with firms that do not perform well enough to create a liquid market for their stock, and hence have to keep high levels of insider ownership in order to avoid a negative price impact that would result from a reduction of their stake. Lastly, these results could also be suggestive of endogeneity concerns. I investigate this issue further in my third essay. Principal-agent models predict that managerial ownership and firm performance are endogenously determined by exogenous changes in a firm's contracting environment. Changes in the contracting environment are, however, only partially observed, and the standard statistical techniques used to address endogeneity may be ineffective in this corporate setting. In my third essay, together with my coauthor Phil Davies, we develop a novel econometric approach to control for the influence of time-varying unobserved variables related to a firm's contracting environment. Using the same large panel dataset of U.S. firms over the period 1988-2004, we find no evidence of a systematic relation between managerial ownership and performance.
Rene Stulz, PhD (Committee Chair)
Bernadette Minton, PhD (Committee Member)
Karen Wruck, PhD (Committee Member)
Ruediger Fahlenbrach, PhD (Committee Member)
225 p.
Finance
endogeneity; natural experiment; financial distress; bankruptcy; managerial ownership

Recommended Citations

Citations

  • Taillard, J. P. A. (2010). Three Essays in Corporate Finance [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1267652386

    APA Style (7th edition)

  • Taillard, Jerome. Three Essays in Corporate Finance. 2010. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1267652386.

    MLA Style (8th edition)

  • Taillard, Jerome. "Three Essays in Corporate Finance." Doctoral dissertation, Ohio State University, 2010. http://rave.ohiolink.edu/etdc/view?acc_num=osu1267652386

    Chicago Manual of Style (17th edition)

osu1267652386
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This open access ETD is published by The Ohio State University and OhioLINK.