Dissertation
Three essays on corporate finance and investment
University of Iowa
Doctor of Philosophy (PhD), University of Iowa
Summer 2023
DOI: 10.25820/etd.007239
Abstract
This dissertation focuses on a range of topics in corporate finance and investments. In the first chapter, I study the effects of climate policy uncertainty on firms' environmental performances and efforts. The second chapter examines the role of lease financing in disaster-affected firms under collateral constraints. In the third chapter, we document the negative announcement returns on additions to the S&P 500 index and investigate the likely reasons behind the flipped negative returns on upward additions to the S&P 500 index and positive returns on downward deletions from that index.
In Chapter 1 titled "Waiting or Acting: The Effects of Climate Policy Uncertainty", I examine how climate policy uncertainty affects firms' environmental performances and efforts. I find that firms reduce toxic emissions under high climate policy uncertainty. Instead of a ``wait-and-see'' strategy, firms take pre-emptive actions by accelerating environmental innovation and adopting abatement technologies when climate policy uncertainty arises. Further analyses suggest that institutional investors withdraw capital from polluting firms under high uncertainty of climate regulation. By exploiting the lagged political polarization of the U.S. House roll-call votes and standard deviation of the pro-climate votes in the Senate on environmental and climate change-related bills to instrument the climate policy uncertainty index, I suggest that the effect of climate policy uncertainty on reducing emissions is causal.
In Chapter 2 titled "Natural Disasters and Firm Leasing: A Collateral Channel", I explore the role of lease financing in disaster-affected firms under collateral constraints. Disaster-affected firms demand funds for post-disaster reconstruction. However, the destruction of natural disasters leads to collateral constraints, which create external financing frictions. I find that affected firms obtain financing through operating leases after natural disasters. The significance of the findings highlights the importance of operating leases for collateral-constrained firms.
Chapter 3, titled "Negative Returns On Addition To The S&P 500 Index And Positive Returns On Deletion? New Evidence On The Attractiveness Of S&P 500 Versus S&P 400 Indexes", is coauthored with Dr. Anand Vijh. We revisit the announcement returns on additions to the S&P 500 index and find that the announcement returns of these changes have been the opposite of what has been documented for all S&P 500 additions and deletions in an extensive literature. During 2016-2020, such ‘upward additions’ to the S&P 500 index resulted in an average announcement excess return of -2.48% over a three-day period while ‘downward deletions’ to the S&P 400 index resulted in an excess return of +1.37%. We explain these new results by the increasing total institutional ownership of S&P 400 stocks. Our results thus show the increasing benefits of being included in the mid-cap S&P 400 index relative to being included in the large-cap S&P 500 index.
Details
- Title: Subtitle
- Three essays on corporate finance and investment
- Creators
- Jiawei (Brooke) Wang
- Contributors
- Anand Mohan Vijh (Advisor)Erik Lie (Committee Member)Petra Sinagl (Committee Member)Cameron M. Ellis (Committee Member)
- Resource Type
- Dissertation
- Degree Awarded
- Doctor of Philosophy (PhD), University of Iowa
- Degree in
- Business Administration
- Date degree season
- Summer 2023
- Publisher
- University of Iowa
- DOI
- 10.25820/etd.007239
- Number of pages
- xiii, 194 pages
- Copyright
- Copyright 2023 Jiawei (Brooke) Wang
- Language
- English
- Date submitted
- 05/09/2023
- Description illustrations
- illustrations (some color), color maps
- Description bibliographic
- Includes bibliographical references (pages 151-162).
- Public Abstract (ETD)
Climate change and its related policies have drawn significant attention from the public over the last decade. Many countries have carried out regulations that aim to protect the environment and public health from pollution. Arguably, the impact of environmental regulatory uncertainty is equally important but under-investigated. My paper attempts to fill that gap in the literature and investigates firms’ environmental behavior in the presence of uncertainty about future climate policy developments. I find that firms take preemptive actions, reducing pollutant emissions, increasing R&D expenditures, and accelerating environmental innovation when climate policy uncertainty arises.
Next, my thesis studies how affected firms alleviate their financing needs after natural disasters. Natural disasters have a far-reaching impact on personal injury and illness, and the economy. The economic costs incurred from major natural disasters in the United States seem to have increased over the last few decades. According to National Oceanic and Atmosphere Administration (NOAA), there were 20 billion-dollar weather and climate disaster events with a total cost of 145 billion U.S. dollars in 2021. It made 2021 the third costliest year on record in terms of economic losses sustained from major natural disasters on record from the 1950s. Therefore, it is important to understand how firms raise financing to make up for damage and restore production after natural disasters. My paper suggests that lease financing is a significant source of financing for affected firms after natural disasters.
Finally, the third chapter studies the announcement returns on the additions to the S&P 500 index. The paper is co-authored with Dr. Anand Vijh. We find that during 2016-2020, stocks added to the S&P 500 index from the S&P 400 index on average earn announcement excess return of -2.48% over a three-day period while ‘downward deletions’ to the S&P 400 index resulted in an excess return of +1.37%. We explain these new results by the increasing total institutional ownership of S&P 400 stocks.
- Academic Unit
- Tippie College of Business
- Record Identifier
- 9984454187802771
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