Three essays on corporate finance

• Main Author: Lee, Min Suk
• Other Authors: Angie Low An Chee
• Format: Thesis-Doctor of Philosophy
• Language: English
• Published: Nanyang Technological University 2019
• Subjects: DRNTU::Business::Finance::Corporate finance; DRNTU::Business::Finance::Corporate governance
• Online Access: https://hdl.handle.net/10356/105864; http://hdl.handle.net/10220/47872
• Institution: Nanyang Technological University

This thesis consists of three chapters, each looking to address different research question. The summary for each chapter is as follows. First chapter: A larger CEO network can reduce cost of equity by reducing information asymmetry between the firm and outsiders, and increase trust between the firm and other firms or stakeholders. Alternatively, a larger network can increase cost of equity because the higher CEO connectedness reduces the costs to the CEO of being fired, which encourages greater agency problems and higher risk decisions. We find a positive relation between CEO’s connectedness and the firm’s cost of equity, suggesting that the costs, on average, outweigh the benefits. The positive relation between CEO connections and cost of equity is attenuated for firms with high information asymmetry, consistent with the beneficial effects of improved information flow mitigating some of the adverse effects from agency costs and risk-taking. We use multiple ways to handle endogeneity and reverse causality problems, and our results are generally robust. Second chapter: We study how increases in employment protection through the passage of state laws affect strategic alliance formation and firm’s choice of growth strategy. We show that, following the adoption of these laws, there is a significant increase in strategic alliance activities, especially among high growth firms. More importantly, there is a shift away from capital-intensive investments, such as internal capital expenditures and M&As towards the more flexible strategic alliance. We also find that firms that form strategic alliances following the adoption of the law have higher innovation output. Overall, our findings are consistent with employment protection making investments within the firm more irreversible and leading them to seek alternative growth strategies by moving investments outside their boundaries through strategic alliance formation. Third chapter: We study the effect of financial constraints on firms’ decision on the choice of growth strategies. We show that financial constraints are positively associated with strategic alliance activities, and negatively associated with mergers and acquisitions. The finding is mixed for internal capital expenditures. We argue that the disciplinary role of financial constraints and the need for financing drive our results. We also present that financially constrained firms use strategic alliances as preferred growth strategy over internal investments and mergers and acquisitions.