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Three Essays in Corporate Finance

Ge, Shan
http://rave.ohiolink.edu/etdc/view?acc_num=osu1531261246477835

Abstract Details

2018, Doctor of Philosophy, Ohio State University, Business Administration.
This dissertation contains three essays in corporate finance. The first chapter studies whether firms’ top managers have shorter horizons when they plan to leave office in the near future. CEOs who know they will leave office soon are likely to have shorter horizons than other CEOs, and thus are likely to focus on short-term payoffs. To detect shorter horizons, I focus on maturities of firms’ new loans, since this decision has an observable time dimension. I find that as CEOs approach retirement, maturities of new loans shorten, but are just long enough for more loans to mature soon after CEOs retire. The shorter maturities lead to lower loan spreads. Departing CEOs appear to care less about firms’ refinancing risk after their departure, but more about interest savings before their departure. Firms near CEOs’ retirement also decrease acquisitions. Such firms also hold more cash, presumably due to fewer activities requiring liquidity and CEOs’ effort before retirement. Results on loan maturities, acquisitions and cash all hold when instrumenting for CEOs’ departure using departure probabilities based on industry and CEOs’ age. The second and third chapters study how firms’ financial constraints can have an effect on firms’ behavior, both using the insurance industry as my study setting. In the second chapter, I examine the effects of financial constraints on firms’ product pricing decisions. I identify effects of financial constraints on firms’ product pricing decisions, using a sample of insurance groups (conglomerates) that contain both life and P&C (property & casualty) subsidiaries. P&C subsidiaries' losses can tighten financial constraints for the life subsidiaries through internal capital markets. I present a model that predicts following P&C losses, premiums should fall for life policies that initially increase insurers’ financial resources, and rise for policies that initially decrease financial resources. Empirically, I find that P&C losses cause changes in life insurance premiums as my model predicts. The effects are concentrated in more financially constrained groups. Evidence also indicates that life subsidiaries increase transfers to P&C subsidiaries following larger P&C losses. These results hold when instrumenting for P&C losses using data on weather damages, implying that P&C losses do cause changes in life insurance premiums and internal transfers. My findings suggest that when financial constraints tighten, firms change product prices to relax the constraints, and how prices change depends on the products' initial impact on firms' financial resources. The third chapter analyzes the effects of financial constraints on firms’ financial investments. I study how insurers’ financial constraints affect their financial asset allocation. Results suggest that more constrained insurers invest more in cash and treasury securities, and less in MBS and corporate bonds. My focus is on comparing different corporate bonds in the portfolios of P&C insurers. I find that following operating losses, P&C insurers decrease allocations to riskier bonds, and decrease the concentration of bond issuers. Results are largely consistent when instrumenting for P&C losses with weather shocks. Insurers that are ex ante more financially constrained shift their corporate bond portfolio towards safe bonds more following losses. In sum, results suggest that insurers have stronger risk-management incentives when they are more financially constrained.
Michael Weisbach (Advisor)
Isil Erel (Committee Member)
Itzhak Ben-David (Committee Member)
253 p.
Finance

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Citations

  • Ge, S. (2018). Three Essays in Corporate Finance [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1531261246477835

    APA Style (7th edition)

  • Ge, Shan. Three Essays in Corporate Finance. 2018. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1531261246477835.

    MLA Style (8th edition)

  • Ge, Shan. "Three Essays in Corporate Finance." Doctoral dissertation, Ohio State University, 2018. http://rave.ohiolink.edu/etdc/view?acc_num=osu1531261246477835

    Chicago Manual of Style (17th edition)

osu1531261246477835
363
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This open access ETD is published by The Ohio State University and OhioLINK.