Three essays on corporate finance

• Main Author: ZHUANG, Yuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Peer effect; Product market competition; Learning; Financial Analyst; Feedback effect; Managerial overoptimism; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/etd_coll/172; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1172&context=etd_coll
• Institution: Singapore Management University

My dissertation aims to better understand managers and financial analysts’ behavior, incentives, and constraints, as well as their impacts on firm decisions and financial markets. In Chapter 1, I show that peer firms play an important role in determining U.S. corporate cash saving decisions. Using an instrument variable identification strategy, I find that one standard deviation change in peer firms average cash savings leads to a 2.63% same-direction change in firm’s own cash savings, which exceeds the marginal effects of many previously identified determinants. The economic implications of such peer effects are large, which can significantly alter cash savings in a representative industry by 7.2%. In cross-sectional tests, I find that peer effects are stronger when the product market is highly competitive and when the economy is in recession. In addition, less powerful, smaller, and financially constrained firms respond more actively to their peers’ cash saving decisions. Finally, I provide evidence that such peer effects are asymmetric — cash-rich firms, who already hold enough cash, are less likely to mimic peers’ cash policies compared to cash-starved firms.