Three essays on corporate finance

• Main Author: Zou, Kunru
• Other Authors: Ru Hong
• Format: Thesis-Doctor of Philosophy
• Language: English
• Published: Nanyang Technological University 2021
• Subjects: Business::Finance
• Online Access: https://hdl.handle.net/10356/148632
• Institution: Nanyang Technological University

The first essay investigates how politicians’ patronage connections affect privatizations in China. The connections to top political leaders (i.e., Central Committee of the Communist Party of China) make local politicians engage more in rent-seeking by selling state-owned enterprises (SOEs) at substantial discounts. These connected local politicians are also more protected in anti-corruption investigations, thus extracting more rents by selling SOE assets at substantial discounts. Consequently, the privatizations conducted by the local politicians with patronage connections achieve significantly lower gains in efficiency and performance. To identify the role of patronage connection in privatization, we use the mandatory retirement age cut-offs of Central Committee members in the regression discontinuity design. We find drops in price discounts of privatization deals and jumps in efficiency for privatized SOEs when local politicians lose connections to Central Committee members around the retirement age cut-offs.The second essay studies the real and social impacts of debt contracting by exploring the effect of loan covenants on borrowing firms’ CSR (corporate social responsibility) performance. We document that firms with higher covenant intensity (i.e., more restrictive covenants) have poorer CSR performance. The endogeneity tests, which include an instrumental variable approach based on supply-side determinants of loan covenants and two quasi-natural experiments respectively based on SFAS 160 and anti-recharacterization statutes, support a causal relation running from covenant intensity to CSR. Further analyses reveal that the negative CSR effect of covenant intensity is more pronounced when the creditors have higher bargaining power, when loans outstanding are closer to maturity, and when the conflict of interest between creditors and other stakeholders is greater. Taken together, our findings imply that debt covenants, which are designed to alleviate creditor-shareholder conflicts, may have unintended consequences of exacerbating the conflicts between creditors and other stakeholders. In particular, restrictive loan covenants may pressure managers into having a short-term focus, thereby discouraging borrowing firms from engaging in CSR activities. In the third essary, we provide evidence of delayed attention and inaction in response to COVID-19 in countries that did not experience SARS in 2003. Using cross-country data, we find that individuals in countries that had SARS infections in 2003 search more intensively for COVID-19-related information on Google in late January 2020, the time of the first known outbreak in Wuhan, China. Early attention to the novel virus, as measured by Google searches, is associated with deeper stock market drops in countries with SARS experience. In contrast, people in countries without SARS experience started to pay more attention much later, in March. Moreover, governments in these countries responded significantly more slowly in implementing social distancing policies to combat domestic COVID-19 outbreaks than governments in countries with SARS experience. Moreover, such early responses of individuals and governments in countries with SARS experience are prevalent within continent, even in non-Asian countries. Furthermore, people in countries with SARS experience are more compliant with social distancing rules. These timely attention and proactive responses of individuals and governments are more pronounced in countries that reported deaths caused by SARS, which left deeper imprints. Our findings suggest that the imprint of similar viruses’ experience is a fundamental mechanism underlying timely responses to COVID-19.