Essays in corporate finance and public policy

This thesis consists of three chapters. The first chapter is sole-authored and is titled `Cross-border mergers and acquisitions amid political uncertainty.' The second chapter is coauthored work with Professor Jon Garfinkel and Jaewoo Kim and is titled `The interactive influence of external and internal governance on risk taking and outcomes: The importance of CEO career concerns.' The third chapter is coauthored work with Professor Erik Lie and Jaewoo Kim and is titled `Dividend stickiness, debt covenants, and earnings management.'

First chapter examines the effects of political uncertainty surrounding national elections on cross-border mergers and acquisitions. I find that the volume of cross-border mergers and acquisitions between two countries declines before elections in the target country. Firms in industries that are more dependent on the quality of contract enforcement, labor, and government spending are less likely to be acquired during election years. In a cross-border merger deal announced during the target country's election year, acquirers tend to offer a lower bid premium, and the likelihood of an all-cash offer is significantly lower. The acquirer captures a greater fraction of merger gains relative to the target in such a deal. Overall, my findings suggest that political uncertainty importantly affects multiple aspects of cross-border mergers and acquisitions.

Second chapter studies the effects of multi-layered governance on firm risk by focusing on the interaction of two types of career concerns. Two Delaware court decisions, the validation of poison pill defenses (the Unitrin decision) implemented by staggered boards (the Wallace decision), reduced takeover-related career concerns. CEO age influences the response of Delaware firms to these shocks. Older CEOs in newly insulated firms reduce risk, while their younger counterparts increase risk. Ex-post, the differential behavior among young Delaware CEOs appears to be rewarded with abnormally positive stock performance and better future career outcomes. We conclude that there is important variation in the effects of governance on firm (CEO) behavior, driven by multiple facets of career concerns.

Third chapter examines dividend stickiness. Consistent with the notion that dividends are very sticky, Daniel, Denis, and Naveen (2008) report evidence that firms manage earnings upward when pre-managed earnings are expected to fall short of dividend payments. However, we find that this evidence is not robust when controlling for firms' tendency to manage earnings upward to avoid reporting earnings declines. We further report that the decision to cut dividends depends on whether reported earnings fall short of past dividends, but not on earnings management that eliminates a shortfall in pre-managed earnings relative to dividend payments. Overall, our evidence suggests that firms that face dividend constraints are more likely to cut dividends than to manage earnings to avoid dividend cuts.