Three essays in corporate finance
Abstract
My Ph.D. dissertation is composed of three chapters in corporate finance. The first chapter empirically investigates the relationship between leasing and debt financing using S&P's COMPUSTAT data. It differs from previous literature in two aspects. First, it constructs a simple structural model in which the substitutability/complementarity between leases and debt is related to the impact of leases on the marginal financing cost of debt. Second, a generalized method of moments (GMM) technique is utilized to simultaneously control for the endogeneity problem and the firms' fixed effects in the regression. The estimation results indicate that debt and leases are substitutes, and that this substitutability is more profound when the firm faces more severe asymmetric information or agency problem, or when the firm has less redundant tax shields. The second chapter (joint work with Thomas Chemmanur) provides a non-tax rationale for leasing based on a double-sided asymmetric information setting. In the model, a manufacturer has private information about the quality of the capital goods he produces, and the user of the capital goods has private information about his cost of maintaining the goods. Leasing emerges as a solution to this double-sided adverse selection problem, i.e., the manufacturer producing high quality capital goods can use leasing contracts to signal his type, and he can also design various kinds of leasing contracts to segment the user's market. The third chapter (joint work with Thomas Chemmanur) develops a new rationale for the value and performance improvements of firms following corporate spin-offs. It argues that spin-offs increase the chance for potential rivals to take over control of firms from the incumbent management, which in turn motivates the incumbent to work harder in an attempt to maintain control. Therefore the firm's equity value increases upon spin-off announcements since the market incorporates in its valuations the increased probability of a takeover by a more able rival, and the anticipated increase in the managerial efficiency arising from the disciplining effect of spin-offs on the incumbent management. In addition to the positive announcement effects, this chapter predicts that the equity of spun-offs will also exhibit long-term positive abnormal returns.
Recommended Citation
An Yan,
"Three essays in corporate finance"
(January 1, 2001).
Boston College Dissertations and Theses.
Paper AAI3008598.
http://escholarship.bc.edu/dissertations/AAI3008598
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