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This Ph.D. thesis consists of three empirical studies on environmental transition risks and corporate decisions and performance. The first empirical study examines the impact of environmental regulation stringency on the location choice of pollution-intensive firms. I aim to verify the pollution haven hypothesis (Porter hypothesis) suggesting firms that would (not) choose to relocate (but to innovate) by using Chinese provincial-level data from 2008 to 2015. I proxy the regulation stringency with multidimensional institutional capacity and construct an index by using the entropy method. The stringency reduces the number and growth rate of pollution-intensive firms in highly regulated regions, especially firms in heavy industries. An important channel through which stringent environmental regulations hold back firm creation is increased financing costs. Stringent environmental regulations are not found to promote technology innovation because relocation seems less costly. I also find that raising environmental regulation stringency in one region affects pollution-intensive firms' location choice in neighbouring provinces. Overall, the results support the pollution haven hypothesis and uncover a financing-based mechanism underlying the relationship between environmental regulations and firms' location choice. The second empirical study examines the impact of China's Emission Trading Scheme on its regulated firm's financial performance. Based on the panel data of China's ETS regulated firms from 2008 to 2017, this study uses the Propensity Score Matching Difference-in-Differences method to study how the listed firm's financial performance is affected by China's ETS. The empirical results show that firms regulated by China's ETS would escalate their financial performance in different aspects. Through the mediating effect test, this study has found that even though China's ETS would increase its regulated firm technical progress, but this progress would not affect their financial performance. These results further verify the applicability of the weak version of the Porter hypothesis but reject the strong version. Furthermore, I have tested the impact of the carbon price and its volatility on firm financial performance. Different from the traditional view on the impact of the carbon price, this study has found that growing the carbon price would benefit regulated firm financial performance, but higher volatility is harmful to the performance. The third empirical study examines the impact of regional climate transition risk on corporate bond pricing. We find that investors would require a higher yield spread when they are buying the bond that their issuer faces higher climate transition risk. Further, we show such risks affect firms' cost of debt by increasing credit risk and incurring more financial distress. The results of the moderating effect analysis suggest that the increase in the cost of debt is more pronounced for firms in industries with high environmental litigation risk, non-state-owned enterprises (non-SOEs) and those in the region without a political turnover. Overall, our results provide evidence that the observed higher bond yield spread is the result of climate-sensitive investments practices by investors.

This thesis aims to detect the relationship between innovation and three important topics in corporate finance, including annual report readability, dividend smoothing and corporate payout preference. Innovation, unlike the traditional projects, is intuitively associated with higher risk and lower transparency. However, as the main engine of growth, innovation indicates firms are focusing on the long-run performance and are trying to improve their future prospects. Therefore, information incorporated in innovation can be more complicated than envisioned. To delineate the information and signals conveyed by innovation, our study focuses on three pervasive issues in corporate finance: annual report readability, dividend smoothing, and corporate payout. Our research starts from the relationship between innovation and annual report readability. We introduce four innovation indicators, namely innovation incentive, innovation intensity, innovation value, and innovation efficiency, with each capturing and reflecting different aspects and the performance involved in innovation activities. We show that less readable annual reports are positively correlated with innovation performance, including innovation incentive, innovation intensity, and innovation value. We also document that firms tend to use unreadable annual reports as substitutes for the accrual-based earnings management, but as the complements for the real earnings management. Thus, the relationship between annual report readability and innovation is more pronounced in firms with aggressive real earnings management, but less accrual earnings management. Introducing the accounting expertise and the product market competition, we also prove that the low readability is an intentional choice, instead of a phenomenon related to the complex business. Overall, our findings provide novel insights that innovation, unlike traditional projects, is able to go along with unreadable and less clear annual reports. Motivated by the increasingly universal and pervasive dividend smoothing, our second essay addresses whether innovation level is associated with the degree of dividend smoothing. We find that more innovative firms tend to have higher degree of dividend smoothing. This relationship continues to hold after correcting the endogeneity bias, replacing ex-post measures of innovation with the exante R&D intensity and normalizing innovation by industry. We further introduce the financial constraints, finding that instead of encouraging dividend smoothing, financial constraints reduce the degree of dividend smoothing in the innovative companies. Our study also demonstrates that the positive relationship between innovation and dividend smoothing is more pronounced in firms with low cash holdings, while dividend smoothing is especially attractive to those without sufficient cash reserve. Finally, we show that the level of innovation is positively correlated with the degree of dividend smoothing only when firms are covered by few analysts. Overall, this study provides novel empirical evidence on the relationship between innovation and dividend smoothing. In our third essay, we focus on corporate payout preference, as how firms determine their payout policy is a central topic in corporate finance. We analyze the association between innovation and corporate payout preference, predicting and confirming that firms with more innovation, measured by increasing number of patents and higher patent value, prefer to use share repurchases as their payout methods. This relationship is more pronounced in firms without financial constraints. Other factors, such as temporary cash flows and volatility, can also affect the payout policy in the innovative firms. Our results further prove that internally created innovation, instead of externally purchased technology, can mainly account for the positive correlation between innovation and share repurchases. Overall, the novel nature of our findings provides compelling evidence that innovative firms have a preference for flexible share repurchases over dividends as their payout methods.

This dissertation is composed of three related essays that contribute to the literature on dynamic corporate finance theory. In the first essay, we study dynamic group decisions by examining how heterogeneity in risk preferences of decision-makers influences the joint dynamic of financial policies. Each member receives a non-tradable claim that reflects her risk preference. Claims are convex, S-shaped and concave for investors with the lowest, intermediate and highest level of risk aversion, respectively. The group's optimal investment policy is a time-varying weighted average of investors' optimal policies. Debt is safe and procyclical as the firm dynamically rebalances in response to shocks. We show that only non-linear contracts in conjunction with dynamic investment and financing policies can substitute for rigid group membership. The second essay explores how information acquisition affects a firm's learning, investment, payout and utility under incomplete information and imperfect learning. Extra information improves learning, induces more aggressive investment and encourages higher payout. However, the costs incurred can overturn the benefits generated and lead to further inefficiency, dampening the motivation to search for information. The demand for information is shown to be time-varying. It increases when the investment environment is volatile, and when the investors' marginal utility of consumption is high. It decreases when the firm's estimated rate of return from investment is high as learning becomes a second-order concern. The third essay studies the interaction of individual firms' leverage dynamics and product market competition. Equity holders are unable to commit to a future debt level and determine the firms' financing, production, entry and exit decisions. Non-commitment makes debt financing more expensive as debt holders foresee a ratchet up in future debt, raising the entry barriers and hindering new entries into the market. This results in lower product market competition, lower total output and higher output prices. The absence of debt policy commitment reshapes the stationary firm distribution, increases the market turnover rate and escalates the industry leverage.

This thesis consists of three essays about the role of labor protection in corporate finance. The first empirical work studies labor protection and the leverage-employee pay relation. The literature documents a relation between financial leverage and employee pay, in which employees demand a high wage to compensate for the high unemployment risk caused by firms' high leverage. This paper investigates how an exogenous labor protection law affects the above relation. I show that the adoption of the law alleviates firms' pressure from raising wages, given the improvement of job security brought by the law; and financially constrained or distressed firms particularly benefited from the law. My results suggest that all else equal, labor protection law helps firms control their leverage related labor costs via improving the job security of employees.

Despite its prominent role in firms' external financing, debt is highly underrepresented in the academic literature, compared to equity financing (Cumming, 2016). This thesis investigates corporate debt under diverse bankruptcy regulation in Europe (Chapter 1), as well as benefits arising from debt renegotiation among US firms (Chapter 2 and 3). The first study examines whether corporate borrowing responds to the strength of creditor rights, which differ greatly across countries. We use a difference-in-differences (DiD) methodology around an EU-wide bankruptcy reform in 2002 as an exogenous shock that reshaped the institutional environment for corporate debtors and their creditors in Europe. Our findings suggest that subsidiaries in the EU decrease their leverage when they are exposed to less creditor-friendly regimes after 2002, while there is hardly any impact on leverage when shifting to an equally creditor-friendly regime, and even less so when shifting to a more creditor-friendly one. We conclude that the legal environment under which credit is granted matters for firms' access to finance. The following two studies take a closer look into the bank-firm relationship during which renegotiations of existing loans are frequently observed. While the area of private debt renegotiation (among healthy firms) is not very well researched so far, this is the first study to link between loan renegotiation and firms' credit rating (Chapter 2) and firms' adjustments toward capital structure targets (Chapter 3). Firms' credit rating is important as it determines the rate firms have to pay for private debt and it governs capital requirements of lenders (Basel II and III). The study shows a positive impact on a firm's credit ratings whenever there was a loan amendment in the month prior to the rating update. Amending loans after the initial loan contract therefore carries signalling power to the capital market (in line with existing literature) and implies benefits to both borrowers and lenders. The third study finds an additional beneficial effect of loan amendments for firms. We investigate whether loan amendments might serve as a channel available to firms to speed up their adjustments toward capital structure targets. Against a broad range of alternative leverage target definitions used in the capital structure literature recently, loan amendments tend to accelerate firms' speed of adjustments by up to 10.6 percent points within twelve months after the loan has been amended (in addition to firms' general speed of adjustment). Therefore, our studies provide evidence for additional, novel benefits of corporate debt renegotiation which encourages firms to update and optimise financial contract design even after origination.

Credit is a vital source of investment financing in most economies. Debt-based contracts allow cash-constrained firms to borrow against future profits without ceding control of their firm, using a relatively simple fixed repayment structure. However, excessive debt can lead to more fragile firms, and a misallocation of investment. While the optimal capital structure for a typical firm is likely to contain a combination of both debt and equity, most tax systems systematically discriminate against equity financing by subsidising debt. In Chapter 1, I investigate the effect of a policy change in Belgium that mitigated the classical tax discrimination between debt and equity financing through allowing firms to reduce their taxable income by an amount based on the equity in their capital structure. I find that this policy led to significantly lower leverage ratios, with the effect being greater for larger firms, as would have been expected given the relative incentives for large firms created by the policy change. Analysis of heterogeneous effects reveals that the decrease in leverage was most significant for those firms who were most exposed to risk in the pre-policy period, which provides favourable evidence for the effect of such policies on reducing leverage. The predominance of debt-based financing is also evident in developing countries, which may benefit from a greater availability of equity-based financing products. In Chapter 2, I present results from work with two of the largest microfinance institutions in Pakistan to investigate the effects of 'microequity' contracts on microenterprises. I implement an artefactual field experiment with Pakistani microenterprise owners, designed using a simple model of investment choice. Results reveal that equity-financed microenterprise owners chose investment options with a greater expected profit than those under debt financing, with heterogeneity analysis suggesting a larger effect for more risk-averse individuals. In the second part of Chapter 2, I present results from a field survey that provides insights on the reasons for which most microfinance institutions do not actually offer microequity products, despite their potential benefits. Results indicate the practical implementation challenges related to costly state verification, adverse selection into income-sharing contracts and moral hazard caused by inappropriatelytailored profit-sharing ratios. Chapter 3 investigates the demand for a shared-ownership microfinance contract, using a field experiment with the same participants as Chapter 2. The contract is designed to help growth-oriented microenterprise owners who have reached their borrowing limit to expand their business with the purchase of a fixed asset. High take-up was observed for the shared-ownership product in general, with a strong preference for a more flexible repayment schedule, which was randomly offered to half of the treatment group. Analysis of heterogenous demand provides some evidence that the preference for flexible contracts is particularly strong among the most risk-averse microenterprise owners, who may benefit more from the implicit insurance inherent in shared-ownership contracts.

The evolving nature of the Korean 'chaebol' - both a business group and the founding family who control the corporation - continues to intrigue scholars of corporate governance (Khanna and Yafeh, JEL 2007). In my thesis, I investigate these multi-generational controlling families to explain the chaebol's significance in the historical evolution of South Korea's political economy during the 20th century. My research first describes the origins of chaebol entrepreneurs and details their role in the growth of light industry before the the rise of state-led industrialisation during the social revolution of the 1960s in South Korea. I then consider the specific institutional features which appear to work against family control, even though they would ultimately support its proliferation: 1) progressive politics; 2) inheritance tax; and 3) ownership dispersion. Notably, my analysis of these distinctive institutions provides a clearer understanding of the contemporary behavior of the chaebols and their ability to maintain family control over many decades of growth. In order to better understand the role of controlling families, during the state-led industrialisation period (1961-1988), I analyse their corporate networks and their ability to wield political power. To do so, I employ an unconventional source of evidence: a database of marriages among chaebol families. This research is theoretically grounded in the contact capabilities hypothesis advanced by Amsden (1989) and Guillén (2001a, 2001b with Kock). My scholarly approach complements parallel research on human networks within the state. My findings have implications for: 1) the epochal nature of chaebol-political networks; and 2) the market reaction to such network events, thus demonstrating the economic significance of these informal networks. In my last chapter on the post-1998 era of financial liberalisation, I explore the evolution of the ownership structure within the business group as it relates to policy history. I do this through an analysis of The Holding Company Act of 1999, and show how the controlling families in South Korea found novel ways to use the Act to support their family ownership and corporate control in spite of the original intentions of the regulators. As I show, share buyback programmes, first popularized in Anglo-American financial markets, were crucial to the maintenance of chaebol. As it turns out, liberal policies, imported from the West, proved no more able to limit family capitalism in South Korea than domestic policy had been during the preceding state-led industrialisation era. Nonetheless, activist investor has a special role to play.

This dissertation consists of two essays. The first essay (Chapter 1) looks at retiree medical plans in the context of mergers and acquisition activity. The second essay (Chapter 2) is an investigation of the at-the-market (ATM) offerings, an alternative method for follow-on equity issuance. In my study of retiree medical plans, I conduct the first analysis of private sector firms with retiree medical benefit plans in the context of mergers and acquisitions activity. Examining how acquirers respond to the presence of retiree medical plan liabilities in their targets, I find statistically and economically significant reductions in acquisition premia in deals in which the target is a sponsor of a retiree medical plan. Critically, these results are driven only by plans that have a general assets funding arrangement, in which in which a plan has no assets, or the assets are comingled with the plan sponsor’s other funds. This suggests acquirers are aware of and compensate for the liabilities arising from the transfer of the retiree medical plan with reduced acquisition premia. I also find that target firms that sponsor retiree medical plans are less likely to be targeted for acquisition as well as less likely to be acquired. These effects are also driven by plans with a general assets funding arrangement. This suggests the uncertainty about the value of retiree medical plan liabilities is a source of risk that acts as a takeover deterrent. At-the-market offerings, in which firms forgo the firm commitment process and issue follow-on equity directly into the secondary market, has rapidly become an important method by which firms raise equity capital. Across a sample spanning 2005-2019, I document a trend of increasing number of issues as well as proceeds, both in absolute terms and relative to SEOs. In 2019, the number of ATM issues was 72.4% that of SEOs, and the proceeds from ATMs were 29.5% that of SEOs. I also find a -3.61% market reaction to ATM offering announcements, compared to -1.34% for SEOs. I find that the market reaction to both ATM offer announcement and SEO announcement has a strong negative association with prior stock price run-up. However, ATM offer announcement returns are decreasing in offer size, while the market’s reaction to SEO announcements is increasing in offer size. These findings are consistent with the asymmetric information framework of Myers and Majluf (1984) and with the costly certification hypothesis of Chemmanur and Fulghieri (1994). Finally, I use a difference-in-difference framework exploit the 2008 SEC regulations change to test the potential effect of an ATM offering on firm value. I find evidence consistent with ATMs being value-enhancing for firms that choose to utilize them.

Wind power is one of the world's fastest-growing renewable energy resources and has expanded quickly within the US electric grid. Currently, wind power producers (WPPs) may sell energy products in US markets but are not allowed to sell reserve products, due to the uncertain and intermittent nature of wind power. However, as wind’s share of the power supply grows, it may eventually be necessary for WPPs to contribute to system-wide reserves. This paper proposes a stochastic optimization model to determine the optimal offer strategy for a WPP that participates in the day-ahead and real-time energy and spinning reserve markets. The objective function maximizes the WPP’s total expected profit while minimizing risk by allowing the WPP to split its offers between the energy market and the spinning reserve market, which has lower penalties for failing to deliver the cleared day-ahead offer. Risk is considered through the Conditional Value at Risk metric and several risk aversion levels are studied. Case study results show that the proposed offer strategy increases expected profit and decreases risk compared to the case where the WPP only participates in the energy market. Advisors: Wei Qiao and Liyan Qu

We investigate the impact of cash reserves upon the optimal behaviour of a modelled firm that has uncertain future revenues. To achieve this, we build up a corporate financing model of a firm from a Real Options foundation, with the option to close as a core business decision maintained throughout. We model the firm by employing an optimal stochastic control mathematical approach, which is based upon a partial differential equations perspective. In so doing, we are able to assess the incremental impacts upon the optimal operation of the cash constrained firm, by sequentially including: an optimal dividend distribution; optimal equity financing; and optimal debt financing (conducted in a novel equilibrium setting between firm and creditor). We present efficient numerical schemes to solve these models, which are generally built from the Projected Successive Over Relaxation (PSOR) method, and the Semi-Lagrangian approach. Using these numerical tools, and our gained economic insights, we then allow the firm the option to also expand the operation, so they may also take advantage of favourable economic conditions.

The dissertation consists of three chapters exploring three different facets of corporate debt structure choice. In the first chapter, “Risk Management and the Choice between Secured and Unsecured Debt: Evidence from Natural Experiment,” I study whether and how corporate hedging affects firms’ choice between secured and unsecured debt. Exploiting the introduction of steel futures as a natural experiment, I provide causal evidence that risk management enables firms to switch from secured to unsecured debt without sacrificing debt capacity. Cross-sectional evidence supports the interpretation that risk management drives the results. The effects are stronger for firms that are more likely to engage in financial hedging, that derive relatively less benefit or face higher costs from employing secured debt, and that are less financially healthy but with some collateral capacity for financial hedging. To the extent that secured debt financing is associated with a loss of operating flexibility or future financing slack for borrowing firms, my findings suggest a potential channel through which risk management increases firm value that could be masked when heterogeneous debt types are treated uniformly. In the second chapter, “Stock Price Informativeness and Debt Heterogeneity,” I ask whether and how stock price informativeness (SPI) affects corporate debt heterogeneity, defined as the degree of dispersion in debt choice. I document strong evidence that SPI is positively related to a more heterogeneous debt structure. A battery of tests, including a quasi-natural experiment and an IV-2SLS analysis, supports causal interpretation. Cross-sectional evidence reveals that the relation is stronger for firms with higher expected financial distress costs and a higher degree of information asymmetry, consistent with the notion that the reduction in distress costs and alleviation of information asymmetry are the main mechanisms. My findings add to the growing literature on the real effects of financial markets by showing that SPI significantly influences firms’ debt concentration structure adjustment through the channels distinct from the learning channel. In the third chapter, “Government Subsidies and the Choice between Bank and Public Debt,” I ask whether and how government subsidies to U.S. corporations – a growing area of policy interest – affect firms’ choice between bank and public debt. I find that subsidized firms shift their debt financing structure toward more public debt and away from bank debt. These key findings are robust to alternative regression model specification as well as an IV approach exploiting changes in powerful congressional committee chairmanships. Cross-sectional tests reveal that the documented effect of government subsidies on the shift toward public debt is amplified among firms with better governance, severe information asymmetry, and more positive political sentiment, consistent with the notion that enhanced external scrutiny and increased perceived credibility stemming from endorsement effects diminish the need for the traditional monitoring and informational roles of bank debt.

Prior research on corporations finds that there exists a large unexplained firm-specific heterogeneity in corporate behaviors stemming from the effects of managers. This research identifies managerial personalities and tests their effects on corporate behaviors both experimentally and empirically. First, the effects of managerial personalities on corporate financing decisions are tested using a laboratory experiment with managers in South Korea. The laboratory experimental market is à la Modigliani and Miller but with two frictions, bankruptcy costs and corporate taxation. Leverage choices of managers with particular personality traits are compared against the optimal capital structure computed from the static trade-off theory. The results show that extravert managers choose higher leverage ratios, with the effect being financially meaningful although not statistically significant. Secondly, I identify extravert CEOs and empirically measure its effects on corporate financing choices using Chief Executive Officers’ avocation data and corporate financial data of public, nonfinancial US companies between 1992 and 2011. The results of mean comparisons by group, fixed effects regressions, difference-in-difference regressions, and changes of leverages around CEO turnovers show that extravert CEOs tend to issue risky debt more when accessing external finance and maintain higher leverage ratios than their peers. Thirdly, I test the effects of managerial extraversion on executive compensation. I first offer an empirical compensation model of managerial bargaining power, and then empirically tests the prediction by identifying a personality trait relevant to bargaining power using a novel set of managerial hobbies data. The results provide an evidence that CEO bargaining power has an increasing effect on CEO compensation.

Corporate Growth is a concept that has been widely treated in a specific way or as part of strategy theories, in definition and in econometric models and has also been studied in many different aspects and approaches. The author describes in depth the main variables affecting corporate growth and the underlying business processes. This empirical research has focused on Sales, Profit-Cash Flow, Risk, Created Shareholder Value, Market Value and Overall Performance econometric models. These panel data models are based on the 500 Companies of the Standard & Poor’s 500. The methodology used has been very strict in identifying exogenous variables, walking through the different alternative econometric models, discussing results, and, in the end, describing the practical implications in today’s business corporate management. We basically assume that the Functions/Departments act independently in the same company, many times with different objectives, and in this situation clear processes are key to clarify the situations, roles and responsibilities. We also assume that growth implies interactions among the different functions in a company and the CEO acts to lead and coach his immediate Directors as a referee of the key conflicts through his Operating Mechanism. The objective of this PhD Dissertation is to clarify the business priorities and identify the most relevant variables in every process leading to the highest efficiency in reaching a sustainable and profitable growth. It covers the lack of academic studies on the nature and specific driving factors of corporate growth and provides a working framework for Entrepreneurs and Management leading to the Company’s success.

This dissertation consists of two empirical studies in corporate finance. The first study, The Impact of Acquisitions on the Short-Run Returns to Shareholders and Bondholders, investigates shareholder and bondholder wealth with respect to 310 acquisitions in the UK market between 1994 and 2006. It tests the 3-day and 41-day excess security returns with an event study. The results show positive returns for target shareholders and bondholders, and negative returns for acquirer shareholders and bondholders. Moreover, the tests on value-weighted combined security returns show that stockholders lose, bondholders gain, target firms gain, acquirer firms lose, and shareholders/bondholders of target and acquiring firms as a whole lose. These results support the co-insurance hypothesis, wealth transfer hypothesis, hubris hypothesis, and bond return based on hubris hypothesis, and reject the synergy hypothesis. The univariate and multivariate analyses on the deal characteristics find that target and acquirer stock returns are higher with cash payment, acquirer stock returns are higher in friendly and industry unrelated takeovers, acquirer bond returns are higher in industry related takeovers, target firm share returns are higher when target size is smaller than the acquirer size, target and acquirer stock returns are higher in bull market period, and acquirer bond returns are higher in the bear market period. The second study, A Test of the Partial Adjustment Theory of Leverage Using Leverage Changes Arising from Takeovers, investigates firms’ capital structures by the event of takeovers. It examines 659 US acquiring firms which involved in acquisitions between 1962 and 2001. These acquiring firms’ book leverage ratio deviations are tested in an 11-year window. This result shows that takeovers have significant impact on firms’ book leverage ratios in the announcement year. The trend that firms gradually reverse their actual leverage ratios towards their optimism in the five years after the takeovers supports the dynamic trade-off theory. The partial adjustment models on the speed of adjustment further support the dynamic trade-off theory and reject the alternative capital structure theories. The tests on method of payment and source of fund demonstrate that cash payment and raise of funds are likely to increase firms’ leverage ratios at announcement and to maintain these ratios at a high level in the years after the merger.

In 1958, Modigliani and Miller initiated an important debate in modern corporate finance literature, when they stated that in the absence of taxes, the cost of capital of a firm is independent of its capital structure. They modified and then corrected their view in 1963 when they stated that the introduction of corporation taxes into their model implied that there is a tax advantage to leverage and therefore taxes influenced the cost of capital. Subsequently, in the 1970s and 1980s, this debate has focused on the interaction of personal taxes and corporation taxes with the cost of capital and on the determination of whether taxes influence the cost of capital at all. This thesis contributes to this debate by addressing the following issues: (a) Do personal taxes matter at all for calculating the cost of capital. How sensitive is the influence of personal taxes to differences in the capital structure and pay out policies of the firms. (b) How can more realistic features of the tax code be incorporated in the determination of the cost of capital. (c) Taxation systems can be classified into 4 main types according to the degree of integration of personal and corporation taxes. These systems are the Classical, Imputation, Two-Rate and the Integrated systems. The cost of capital, in the presence of uncertainty as well as corporation and personal taxes, is derived for each of the above systems in this thesis. (d) Taxation systems can also be classified into 2 main types according to the taxable base used. These are the Comprehensive Income Tax and the Expenditure Tax systems. The cost of capital, in the presence of uncertainty as well as corporation and personal taxes, is derived under both the above regimes. (e) Application of the results of (a), (b) and (c) above to address practical issues such as using the cost of capital equation to determine the effect of changes introduced by the 1988 Budget on the cost of capital. (f) Application of the results of (d) above to contradict the claims made in the Meade Committee regarding the tax neutrality issue. A system that is tax neutral even when uncertainty is taken into account, is proposed. All the above issues have the common theme of the determination of the appropriate cost of capital in the presence of both uncertainty as well as corporation and personal taxes. The conclusions reached are stated at the end of the relevant chapters.

In my dissertation, I exhibit three studies in Finance. In Chapter 1, I provide a new perspective on the optimal call policy for corporate callable bonds by evaluating the proportion called in call exercises. My data suggests that firms on average call only 66% of the amount initially offered when they call their bonds with fixed-price call provisions, and 69% when they call their bonds with make-whole call provisions. I examine how the proportion called in a call exercise is correlated with bond and firm characteristics. In Chapter 2, I analyze the impact of the maturity of a firm’s bonds upon the liquidity of the firm’s remaining bonds. The results suggest that a reduction in the number of bonds outstanding leads a reduction in liquidity. In Chapter 3, I characterize the presence and consequences of sustainability compensation targets using novel hand-collected data of managerial annual incentive plans (AIP) goals in 1994-2020. The data indicates that sustainability targets are often quantified with corresponding overall weight in the incentive plan instead of rarely observed sustainability modifiers. Moreover, sustainability compensation goals are valuable if implemented in firms with high past pollution levels, exclusively, consistent with optimal contracting.

This document comprises three essays regarding actual share repurchases. In Chapter 1, I show that external pressure in the form of equity analysts asking questions about a firm's actual repurchases can lead firms to more extensively follow through on their recently announced open market share repurchase programs. Such a phenomenon cannot be explained by mere firm characteristics. Instead, only analysts' questions that are shorter, more focused on share repurchases, and blunter in language appear to drive firms for greater follow-throughs. The second essay, detailed in Chapter 2, presents another motivation for firms to actually buy back shares under their active open market share repurchase programs. Specifically, firms with higher accounting quality will likely repurchase more shares to signal their accounting superiority after another firm operating in the same product market issues a financial restatement. As a result, the repurchasing firms separate from the pooling equilibrium with lower accounting quality firms and thus incur lower accounting-related litigation risks. Finally, in the third essay, located in Chapter 3, we compare cash dividends with share repurchases. Firms with greater heterogeneity in beliefs between insiders and outsiders, and among outside equity holders more likely prefer share repurchases to cash dividends for payout. Importantly, this finding can partially explain the disappearing dividend puzzle where rising heterogeneity in beliefs in the economy may have contributed to the substitution of cash dividends with share repurchases in the past two decades.

In my dissertation, I study how the structure of corporate ownership affects financial policies of firms. In Chapter 1, I show that labor mobility affects the timing of a firm's decision to go public. Employees of private firms compensated with stock options face high separation costs. They have to exercise or forfeit their option grants shortly after termination, which can force them to stay with the firm until its IPO. As a result, the firm has incentives to delay its IPO to retain the workers. Using state-level changes in the enforceability of non-compete agreements, I show that a decrease in labor mobility pushes firms to go public earlier. The results are stronger for firms with higher levels of stock option compensation and firms whose options are costlier to exercise. Overall, my findings emphasize the importance of frictions in labor contracting in firms' financing decisions. In Chapter 2, I study whether ESG mutual funds affect environmental policies at their portfolio companies. I use a change in the methodology of the MSCI ESG Leaders Index as a source of quasi-exogenous variation in levels of ESG holdings at firms. I show that firms excluded from the index are more likely to open new plants and increase their toxic releases. I present evidence that the result is driven by lower monitoring efforts by institutional investors. When a fund family's ESG funds divest from a firm, the fund family has lower incentives to influence environmental policies at the firm. The paper highlights that the composition of a firm's ownership has real effects on its environmental policies. In Chapter 3, I propose a novel mechanism that explains why index funds may have a beneficial effect on corporate governance: Increased index fund holdings increase a fund family's incentives to monitor management. Fund families centralize voting and may have incentives to monitor even when their index funds do not. Increased index fund holdings facilitate the coordination between funds from the same fund family and lead to fewer pro-management votes cast by funds in the same family. My results demonstrate that, when families offer both index and active funds, the growth of index funds does not lead to less monitoring of the management. Overall, in my dissertation, I present evidence that the structure of corporate ownership has important effects on the policies of firms. In Chapter 1, I demonstrate that employee stock option holdings affect a firm's IPO decision. In Chapter 2, I show that index funds can alleviate agency frictions at firms they hold. Finally, in Chapter 3, I show that ESG funds can help reduce toxic pollution at the firms they hold in their portfolios.

This dissertation contains three essays on investment dynamics, corporate taxation, and industrial relations. Chapter I studies the effect of Right-To-Work policies on local unions and firms. Chapter II studies the effect of permanent corporate tax reforms using a new cross-country panel of corporate taxation. Chapter III examines the implications of specification choice for measures of the conditional volatility of aggregate investment. In Chapter I “Labor Organizations and Corporate Leverage: The Effect of Right-To-Work Laws” I use the staggered rollout of Right-to-Work (RTW) policies, which prohibit the collection of mandatory agency fees, to examine the relationship between labor union’s financial conditions and firms’ capital structure. I use a novel data set that links large public corporations’ financial reports to unions’ balance sheet data. I find that in the years following RTW, unions that previously relied on agency fees experience a significant loss of revenue before they report a significant loss of membership. Unions exposed to RTW policies, through their reliance on agency fee income, respond to the loss of income by decreasing their spending on operations and increasing the income share of membership contributions, which increase the relative cost of union services on members. I show that large public firms have greater leverage when they are exposed to unions with strong financial balance sheets. In Chapter II “A New Measure Global Series of Corporate Tax Shocks” Isaac Baley, Andres Blanco, and I propose a methodology to identify tax reforms that are persistent in nature. The method consists of a non-parametric filter of structural breaks that disentangles persistent from transitory tax shocks. We validate the filter by (i) using a statistical model of tax reforms calibrated to match empirical moments and (ii) by comparing the identified reforms with available narrative approaches. We apply our methodology to study reforms to the corporate income tax worldwide for the period 1960 and 2020. We document new global facts on corporate tax reforms and explore their short-run aggregate effects. In Chapter III “Cyclicality of Investment Volatility: Implications of Specification Choice” I estimate the conditional volatility of aggregate investment and its components as an autoregressive-moving-average process (ARMA) using standard generalized autoregressive conditional heteroskedasticity (GARCH) estimators. I show that the aggregate volatility of total and equipment investment are acyclical and exhibit low persistence, while the volatility of structure investment is countercyclical and exhibits high persistence. I benchmark my results to prior estimates of the cyclicality of the volatility of aggregate investment in US data and simulated environments. This comparative analysis shows that other specifications in the literature are sensitive to sample selection and outliers.

In my first chapter, I use new granular loan-level data and a novel instrumental variable to estimate the effect of competition among auto dealerships on the joint pricing of cars and car loans. I find that increased competition causes auto dealers to decrease vehicle prices to attract consumers. They, however, offset a large portion of their loss on vehicle prices through charging higher prices on a less transparent margin (i.e., loan markups). Consistent with the monthly payment targeting channel, I find that increased competition does not change consumers' monthly payments. My findings suggest that sophisticated sellers such as auto dealers may exploit the behavioral biases of consumers to maximize their profits. In my second chapter, we study the role of captive finance subsidiaries, vertically integrated lenders, in creating a potential channel for trade policy to affect consumer credit. Examining the Trump administration 2018 metal tariffs’ impact on auto manufacturers, we find consumers received worse auto loan terms from captive lenders after the tariff relative to unaffected non-captive lenders. The average interest rate on captive loans increased by 26 basis points while average loan amounts, loan maturities, and loan-to-value ratios decreased. The worse loan terms represent a tightening of credit along the intensive margin, not a shift in the composition of borrowers. Further, we document a disparate impact on low-income borrowers and in areas with less lending competition. Overall, our results suggest not only that captive finance divisions enable tariff cost pass-through to consumer finance but also that focusing solely on directly affected product prices may underestimate the impact of tariffs. In my third chapter, we study third party quality certification in the market for financial advice. Using the Barron's Top Financial Advisors rankings, we find evidence that being named a top advisor increases both assets under management and accounts for individuals and their firms. The effects increase sharply around thresholds for certification suggesting that clients value the certification itself and not solely the underlying quality. The certification effects are larger for those from smaller firms and newer advisors. Consistent with models of reputation in the financial advisory industry, after certification, advisors are less likely to engage in misconduct.

This dissertation develops a framework to study the patterns of financial constraints in different sectors and development levels. Extensive literature links financial constraints to aggregate productivity outcomes. Finding patterns of the severity of financial constraints would allow us to provide an explanation for the patterns of misallocation and productivity across sectors at different levels of development.Motivated by the rise of the service sector economy and the implications that this will have for developed and developing countries. In the first chapter of this dissertation (together with Narges Attaran) we present the patterns of misallocation in services and manufacturing at different levels of development. While we have some evidence that misallocation is higher in services than in manufacturing, these findings have been produced in the context of intra-country comparison. Is misallocation consistently higher in the service sector? Is there a pattern of the severity of misallocation in the service sector? We answer the later question by presenting a novel fact: misallocation in the service sector is relatively more severe at lower levels of development. To rationalize the previous fact, we build a model of industry dynamics, endogenous borrowing constraints, and financial structure. We use the model to qualitatively capture the new facts presented in this chapter and argue about the potential TFP losses implied by the patterns of premature deindustrialization.In the second chapter of this dissertation (together with Narges Attaran) we ask what does the data tell us about the financing pattern of young firms. Using \textit{Orbis} data we document the financing patterns of young European firms. Specifically, we discuss leverage, trade credit and maturity matching patterns over the early life cycle of firms. By analyzing the financing patters, we aim to provide guidance for modeling choices when working with young firms.In the last chapter of this dissertation, I take the lessons from chapter 2 and propose a model that allows to ask how severe are financial constraints over the early life cycle of firms. Inspired by the corporate finance tradition that infers from the capital structure decisions of a firm the presence of financial frictions, in this chapter I develop an endogenous borrowing constraints model that links capital structure dynamics to enforcement frictions. The paper makes three contributions. First, the model offers the first rationalization of the stylized facts of international corporate finance. Traditional models of endogenous borrowing constraints generate counterfactual predictions regarding long-term leverage across development levels. Second, the model provides a novel framework to analyze financial constraints linking (short and long) funding gaps to outcomes distortions. Third, it argues that short-term funding gaps are biased measures of the severity of financial constraints and proposes a methodology to measure them.The key mechanism of the paper results from the novel interaction between the enforcement level of the economy, the capital/scale choice of firms at entry, and the corresponding sequence of endogenous borrowing constraints that firms will face. Enforcement frictions will directly and indirectly (through distortions in the initial scale choice) affect the borrowing constraint's severity. Moreover, the model uniquely pins down the firm's financial structure (i.e., the necessity of long- and short-term debt). This emerges from the interaction of transaction cost, the fact that short contracts are safe and long contracts are risky, and firms being unable to repay their total debt in the first period of operations. The main contribution of this paper is to show how, by looking at firms' capital structure over the early life cycle, one can infer the full effect of limited enforcement on the severity of financial constraints. The paper's central message is that while the direct effects of enforcement can be inferred using data from a single country, the indirect effects that operate through the scale choice require the usage of a benchmark country. In this sense, measuring the severity of financial constraints is fundamentally a cross-country exercise.

This dissertation is composed of three distinct chapters, all of which revolve around the core subject of how CEO background attributes impact a company’s investment decisions and the resulting corporate outcomes. The first chapter entitled, “CEO International Background and Cross-Border Mergers and Acquisitions” investigates whether having a CEO with an international background affects U.S. firms’ cross-border merger and acquisition (M&A) activities. By defining international background as having either non-U.S. nationality, overseas education, or foreign work experience, this chapter provides robust evidence that when a CEO possesses these characteristics, the firm is more likely to acquire international targets, and these deals are more value-enhancing. Moreover, when the firm’s CEO has all of these international characteristics (compared to just one), both the likelihood of cross-border deals and announcement returns increase. The observed gains are related, at least in part, to CEOs with this background being associated with lower acquisition premia and mitigating the negative impact of paying these deals with equity. The second chapter entitled, “CEO Cultural Legacy and Corporate Investment Efficiency” examines the role of CEO cultural legacy on corporate investment efficiency. By associating nationalities with Hofstede cultural dimensions, this chapter assesses CEO risk propensity and explores the influence of uncertainty avoidance, long-term orientation, individualism, masculinity, indulgence, and power distance on over- and under-investment outcomes. The findings reveal that CEOs hailing from high levels of uncertainty-averse and long-term-oriented cultures exhibit a negative association with investment inefficiency and a reduction in overinvestment. Conversely, CEOs originating from high levels of individualistic, masculine, indulgent, and power-distant cultures demonstrate a positive association with investment inefficiency and a propensity to overinvest. The significance of CEO culture-related decisions is more pronounced under conditions of low external monitoring. The results provide empirical evidence supporting the inheritance of risk preferences and their ramifications on corporate decision-making. Furthermore, the findings remain robust after accounting for the firm and other CEO attributes, and alternative definitions of risk, and survive several robustness and endogeneity tests. The final chapter entitled, “Foreign Experience of Acquirer CEOs and Shareholder Returns” presents empirical evidence demonstrating the implications of diverse CEO backgrounds in the context of domestic mergers and acquisitions (M&As). Findings suggest that U.S. firms led by CEOs possessing foreign experience realize significantly positive abnormal returns during the three-day window surrounding deal announcements. The market response is more favorable when CEOs possessing foreign experience pursue non-public targets, rather than their public counterparts, and when they pay particularly with stock. These executives tend to conduct larger deals, pay a lower premium, and the target firms experience a significant decline in cumulative abnormal returns. The findings demonstrate significant resistance to the “cream rises to the top” phenomenon and withstand several endogeneity and robustness tests. The combined evidence supports the hypothesis that foreign experience is associated with CEOs’ enhanced ability to identify high-synergy targets by mitigating potential home biases, and effectively negotiating and structuring domestic deals, resulting in an increase in bidder shareholder value.

Special Purpose Acquisition Companies (SPACs) are simply enterprises that raise money from the public with the intention of purchasing an existing business and becoming publicly traded in the securities markets. If the SPAC is successful in raising money and the acquisition takes place, the target company takes the SPAC’s place on a stock exchange in a transaction that resembles a public offering. Also known as “blank-check” or “reverse merger” companies, this process avoids many of the pitfalls of a traditional initial public offering. During late 2020 and 2021 an unprecedented surge in the popularity and issuance of Special Purpose Acquisition Companies (SPACSs) took place. John Coates, the SEC’s Acting Director of the Division of Corporation Finance, observed, “Concerns include risks from fees, conflicts, and sponsor compensation, from celebrity sponsorship and the potential for retail participation drawn by baseless hype, and the sheer amount of capital pouring into the SPACS, each of which is designed to hunt for a private target to take public.” We discuss this popular approach to capital formation within the context of the securities issuance process and examine the robust market for SPAC issuance during 2020 and 2021. Financial reporting and auditing considerations are examined, along with regulatory concerns. Several examples of these offerings are provided. We believe this paper adds to the discussion and understanding of this widely employed financing mechanism.

The dissertation consists of two essays. In the first essay, we investigate the dynamics of analyst forecast errors relative to economic policy uncertainty (EPU) and find a significantly positive relation between EPU and analyst forecast errors. A doubling of EPU increases earnings forecast errors by 4.29 percentage points, and the volatility and dispersion in forecast errors are positively related to the EPU. This effect of EPU on forecast errors persists for 13 months with a gradually declining effect that is aligned with Oi–Hartman–Abel effect, a channel through which uncertainty can affect firms' financial activities, performance, and growth. Forecast errors are higher for firms with higher sensitivity to the EPU, and the uncertainty factor retains its significance when compared to other risk factors. Additionally, firms with higher idiosyncratic risks show a higher sensitivity to the economic policy uncertainty. In the second essay, we investigate why a majority of unlevered firms do not pay dividends. Using a behavioral framework, we answer the puzzling but overlooked question: why so many zero-debt firms abstain from paying dividends. In this paper, we present how family ownership is linked to non-dividend-paying behavior of unlevered firms.

This dissertation is comprised of two distinct empirical papers which I document in two separate chapters. In the first chapter, I empirically examine the impact of banks’ environmental, social, and governance (ESG) practices on banking efficiency. Using a sample of 578 international banks over the years 2011-2019, I employ a data envelopment analysis (DEA) method to estimate banks’ technical efficiency scores. My baseline Tobit regressions reveal that high ESG performance significantly reduces banks’ efficiency. Further, I find that this relationship is non-linear at very high levels of ESG scores. These findings are consistent across the social (S) and governance (G) dimensions of ESG, across banks with different sizes and specializations, and across banks from America, Asia, and Oceania regions. I separately control for World Bank’s country-wise governance indicators and find consistent results for each of them. My results survive a couple of robustness tests based on Simar and Wilson (2007) two-stage efficiency analysis and fractional probit regressions. For further robustness, I test for and subsequently obtain persistence of the diminishing efficiency. I use a two-step system Generalized Method of Moments (GMM) estimation to deal with potential endogeneity. My channel regressions suggest that the negative effect is mainly attributed to significant reductions in bank loans and other operating assets. With this novel evidence, this chapter imparts new direction for further research in the growing literature of ESG issues in banking and finance. In the second chapter, I empirically explore the impact of political connections of U.S. suppliers and buyers. Prior evidence, although mixed, suggest that firm performance is significantly associated with its own political contributions. However, the link between firms’ performance and political connections of their suppliers and buyers is yet to be explored. I examine whether performance of U.S. firms is affected by the changes in political contributions of their supplier and buyers. Based on a large sample of U.S. nonfinancial firms and their politically connected suppliers and buyers from 1996 to 2018, my baseline findings reveal that firms’ profitability, value, liquidity, and debt level reduce significantly in response to increases in lobbying expenditures of their suppliers, supporting the bargaining power perspective of political connections. Further, I find that firms exhibit stronger liquidity and increased internal investments following rises in lobbying expenditures of their buyers, suggesting the cash-flow perspective of political contributions. These findings survive a set of robustness tests based on change-on-change regressions and propensity score matching. This chapter provides the first evidence on the link between firm performance and political contributions of their suppliers and buyers. This study shall be of substantial interest to academics, business organizations, and investors who are concerned about the impact that political connections impose on U.S. corporations.

With the reintroduction of hard earmarks in the U.S., it is essential to understand the factors that drive earmark receipt. Legislative earmarks have historically represented a significant source of revenue for several firms. We examine the relationship between political expenditure, federal earmarks, and subsequent firm performance. Using a sample of earmarks from 2008-2010 Appropriations bills, we demonstrate that Political Action Committee (PAC) contributions by firms to Senators and Representatives strongly predict both the size and number of earmarks directed to these companies. We also show that PAC contributions to a member of Congress increase the probability that a politician writes a hard earmark benefiting the firm, leading to an average return of 1,090%. However, PAC contributions to presidential candidates and lobbying expenditure is only marginally effective. Earmark receipt is associated with greater future industry-adjusted profitability, but politically connected earmark recipients exhibit poorer financial performance. Our empirical findings indicate a clear channel through which firms receive value from the U.S. federal government. We also provide evidence that the reintroduction of hard earmarks could negatively impact firm performance. Using acquisition data from 2010-2018, we examine the impact of acquisitions by foreign SOEs on domestic U.S. competitors. We examine the initial response to such acquisition announcements, the attempts of industry incumbents to increase their own political connections, and the profitability and efficiency of such incumbents. When foreign state-owned enterprises (SOE) enter the U.S. market by acquiring domestic firms, they increase competition in the targeted industry. Politically connected market incumbents experience the greatest decline in shareholder value around such acquisitions. Such acquisitions also lead to decreased profitability, increased efficiency, and less reliance on political connections by incumbents.

The insurance industry is a very complex segment of the macroeconomy. An explain will be given as to how these companies are able to maintain and maximize their profits, allowing them to remain in business. A key area in this process is the setting of premiums. This activity draws from many areas of the business model. This paper will start with a birds-eye view and telescope in, starting with standard business practices and ending with specific undertakings of insurance companies. Companies must keep adequate liquid funds. This is done mainly through forecasting cash outflows and investing their assets under management. Within the realm of investing, insurance companies also use hedging techniques to maintain a healthy cashflow.

Judeo-Christian tradition is what has made America great. Today, the biggest threat to Judeo-Christian values in the United States is the rise of communism. This threat stems from the large-scale decline in the percentage of the American population who adheres to a biblical worldview. A biblical worldview is the moral foundation for Judeo-Christian tradition, so without a dominant biblical worldview, Judeo-Christian tradition cannot survive. There are two parts to the stopping the spread of communism. First, a biblical worldview must be restored to America. Second, capitalism must be upheld because it is the only economic system with which a biblical worldview is compatible and therefore serves as the economic foundation for Judeo-Christian tradition.

This thesis models and explores agents’ decisions in reaction to events that serves to increse the heterogeneity among agents. The analysis is conducted on three aspects of financial economics. In chapter 2, we empirically examine how trading by peers on a new platform influences others’ adoption decision. We model the adoption process and find the relationship to be U-shaped, with first movers greatly discouraging their peers from adoption, while late movers slightly discouraging or encouraging their peers. In chapter 3, we investigate how managerial incentives influence corporate social responsibility (CSR). We examine the staggered adoption of corporate opportunity waiver laws (COW) across different states as an exogenous shock that has the potential to weaken the alignment between managers and shareholders.. We find that CSR decreases significantly after the passage of the opportunity waiver laws, which consistent with the delegation view. The drop in CSR performance is more pronounced for firms with weaker corporate governance, and for industries with better growth opportunities. Taken together, our results indicates that CSR activities are the outcome of well-governed managerial decisions. In chapter 4, we construct a hidden risk index which increases when call option prices are lower than the level indicated by the empirical distribution of underlying asset. We find the hidden risk index can predict underlying returns across the timeseries and cross sectionally. Stocks with a high hidden risk index earn significantly lower returns than stocks with low hidden risk index.

To correctly understand why companies make charitable donations, I utilize text-based machine learning technique on news articles to identify underlying topics on what is intended by the firm when making charitable donations. Using topic modeling machine learning technique on article text, I identify four topics of donation, Altruism, Managerial Benefit, Community, and Publicity, and test hypotheses on different possible motives for donations that could be distinguished through topics identified. With the test, I find that cover-up motive and business reputation motive are main drivers of corporate charitable donation. Moreover, I also find that corporate charitable donation is associated with higher profit, reduced information asymmetry, and lower risk. Evidences from tests reveal that corporate charitable donation is mainly motivated by reputation management and is highly strategic with its potential target audiences.

First essay examines if mergers lead to more efficient credit unions. We use a two-step methodology of estimating efficiency scores (technical and scale efficiencies) one year before the merger and three years after the merger through using the Data Envelopment Analysis (DEA). We find that members of acquired US credit unions benefit from improving both technical and scale efficiencies. Conversely, members of acquiring US credit unions do not benefit as the efficiency scores have been unchanged. Therefore, profitability is the primary driver of mergers for the acquiring credit unions, while efficiency is the main one for the acquired credit unions. These results are robust under different assumptions and models. Finally, CAMEL ratios and credit union size are the most important characteristics of a successful merger. In addition, second examines whether mergers improve the productivity of the US credit unions and improve efficiency by decreasing the inefficiencies (slacks) of the input and output factors for the period 2007-2019. First, we estimate the Malmquist Productivity Index (MPI) of the US credit unions; results reveal that both acquired and acquiring credit unions benefit from mergers. However, acquired credit unions benefit more because of the financial synergies. On the Other hand, in terms of input and outputs slacks, acquired credit unions benefit from the merger by decreasing the slacks of two outputs (Deposite_Amount and Loan_Rate). In comparison, the acquiring credit unions benefit from the merger by reducing the slacks of two outputs (Deposite_Rate and Loan_Rate). Conversely, regarding the acquired credit unions, the merger has affected more outputs negatively than does for the acquiring credit unions; this happens by increasing the slacks of three outputs of the acquired versus slacks of one output for acquiring.

This dissertation examines the changes to the European Union (EU) law on market abuse, market manipulation, and insider trading regulation made when the Market Abuse Regulation (MAR) was enacted. I detail the changes in comparison to the previous legislation under the Market Abuse Directive (MAD) and changes several Member States made to their domestic legislation to achieve compliance with MAR. I highlight the sanctions imposed in several Member States to argue the severity of punishment under MAR. This analysis provides evidence that MAR brought about a plausibly exogenous shock to the cost of insider trading. Next, I examine the effects of firm- and country-level culture on insider trading profitability around the announcement, implementation, and first enforcement of MAR. Insiders from high ESG firms tend to engage in less profitable insider trading after the first enforcement of MAR. Insiders from high ESG firms also tend to engage in more (less) profitable purchasing (selling) activity in the post-announcement and post-effective periods. But these effects vary by firm size. I also study the "E" and "S" portions of ESG and find these culture measures lead to differences in profitability in the post-MAR period. High individualism contributes to less profitable trading after the first enforcement of MAR. High uncertainty avoidance and high corruption contribute to more (less) profitable selling (purchasing) activity after the first enforcement of MAR. Market reactions are significantly negative for the publication of sanctions imposed under MAR. This negative reaction is stronger when the enforcement (1) involves illegal insider trading, (2) is against a legal person, (3) imposes a larger pecuniary amount, and (4) was conducted prior to COVID-19 pandemic. This effect differs by firm- and country-level culture. High ESG and high environmental consciousness contribute to higher firm value after the first European Securities and Market Authority (ESMA) publication of MAR enforcements. Country-level culture and insider trading profitability do not contribute to firm value after the first ESMA report on MAR enforcements is published.

In this study, I examine whether it is possible to predict future financial statement fraud using disclosure content prior to the fraud. Specifically, I employ a machine learning algorithm to construct a unique measure based on the lexical cues embedded within a firm’s first public disclosure, the Management’s Discussion and Analysis section of the S-1 filing, during the Initial Public Offering process. I use this measure to predict whether a firm that is not already committing fraud will commit fraud within five years of the Initial Public Offering (IPO) that results in an Accounting or Enforcement Release (AAER). I find there is information within the S-1 filing that is useful in the prediction of out-of-sample fraud. Additionally, I find that the measure performs better than both benchmark measures from prior literature and a new measure using quantitative information, when using information available at the S-1 date. Furthermore, the lexical cues measure performs well in predicting fraud relative to the benchmark measures even after updating the benchmark measures with misstated annual filings to aid their (but not my measure’s) fraud detection abilities. I find that my new measure is not limited to only predicting AAER based misconduct, but that the out-of-sample results hold when using an alternate sample based on 10(b)-5 filings as well as a comprehensive set of quantitative variables. Lastly, my measure identifies firms more likely to manage earnings to meet/beat analyst forecasts, firms who experience higher levels of information asymmetry around earnings announcements within the five years following the IPO, and has some predictive ability over future abnormal returns.

In my dissertation, I explore how managerial attributes affect corporate policies. In my first essay, I examine the effects of public firm CEOs’ prior private equity (PE) target experiences on corporate policies. Based on difference-in-differences and propensity score matching analyses, public firm CEOs previously serving as CEOs in PE targets reduce investment by about 15 percent while enhancing patent values by over 7 percent after taking office compared to CEOs without such experiences. The effects are stronger if these CEOs (1) worked in targets invested by more reputable PE firms, (2) worked in targets invested by PE firms known for implementing significant capital investment cuts or for enhancing innovation, and (3) have more recent and longer PE target experiences. These CEOs also cut employment, enhance firm value, and increase leverage. In my second essay, I examine whether and how the managerial ability of customer firms affects their suppliers. Following the event where a more able CEO takes office in the customer firm, the percentile rank of supplier’s managerial ability increases by 12, while the percentile rank of supplier’s total firm efficiency (i.e., the ability to generate sales from a given set of inputs) increases by 10. The effects are stronger if (1) the supplier is financially constrained, (2) the supplier is in the industry that is more vertically related with its customer industry, (3) the supplier is in the industry that shares similar technology space with its customer industry, (4) the customer firm CEOs are hired from within the same industry, (5) the supplier is more important to its customer in term of the proportion of the customer’s cost of goods sold (COGS) accounted for by the supplier, (6) the customer-supplier relationship lasts longer, and (7) the managers in the supplier firms were previously socially connected with managers in the customer firms. Furthermore, the supplier firm improves earnings quality, boosts credit ratings, increases leverage,and enhances firm value after more-able customer CEOs take office. Overall, these findings provide evidence of positive spillover effects of managerial ability in the supply chain. In my third essay, I study the effects of the social network connections of chief technology officers (CTOs) on corporate innovation. I find that firms with better connected CTOs invest more in research and development (R&D), receive more patents, and attract more patent citations. In addition to the general network centrality, the professional network centrality of CTOs constructed based on the sample of CTOs also fosters firm innovation. Further tests show that firms innovate more if the CTOs are hired by the incumbent CEOs. Finally, I provide evidence indicating that well-connected CTOs engage in efficient R&D investments.

In the first chapter, using political corruption conviction data from the U.S. Department of Justice, I examine the impact of local corruption on firms’ debt maturity structure while exploring both demand-side and supply-side explanations. My results support the demand-side story and indicate that firms located in high corruption areas utilize less short-term debt to mitigate liquidity and refinancing risks. Consistent with this, I find the effect is more pronounced among firms with smaller size, lower asset redeployability, and higher volatility. My findings remain robust to the inclusion of an array of controls expected to influence debt maturity preferences as well as time, industry, and state fixed effects. Moreover, a seemingly unrelated regression approach, instrumental variables regression, propensity score matching, and placebo analyses corroborate my findings. Altogether, my results indicate that firms alter their debt maturity choices in response to local corruption to limit refinancing risk and the uncertainty created by corrupt government officials. In the second chapter, I investigate the effects of firm-level political risk on corporate investments and operating performance. I find that diversified firms are better able than focused firms in mitigating idiosyncratic political risk. Diversified firms accomplish this feat via efficient use of the internal capital market that allows segments to alleviate political risk adversity. When exposed to political risk, diversified firms do not spend more on lobbying and political donations than the focused firms in the subsequent period, implying that diversified firms do not manage political risk politically. The main findings are robust to a battery of endogeneity tests.

Reserve assets include commodities, currencies, or other capital held by institutions as a hedge against the fluctuations of external factors. While the United States’ rise to power helped establish the US dollar as the most predominant reserve asset of the past fifty years, current events & the fast pace of technological advancement has exposed some limitations in the system. Blockchain technology has allowed for assets with cryptographically verifiable integrity that fundamentally depart from the US dollar standard and has potential to overhaul reserve assets as we know it. The course of this research details the downsides of legacy reserve assets, the cryptographic innovations that make cryptocurrencies a viable alternative, and an adoption framework for interested institutions.

Charitable organizations are significant contributors to the U.S. economy, and Americans invest billions of dollars into these organizations through their donations. Without these organizations, additional pressure would be placed on governmental agencies to provide certain services or those services would not be provided at all, indicating that these organizations’ long-term survival is necessary. In 1991, Tuckman and Chang published the seminal work on the financial vulnerability of nonprofit organizations and presented a model that describes a financially vulnerable organization. Subsequent studies of this model indicate that the model is predictive; however, those studies did not utilize an actual financial shock. This study tests the predictive ability of the Tuckman-Chang model by applying it to charitable organizations that survived and did not survive the Great Recession, an economic event that negatively affected the charitable sector. Charitable organizations listed in the 2006 IRS Statistics of Income Exempt Organizations Sample File (SOI), hosted by the National Center for Charitable Statistics (NCCS) Data Archive, were compared to those listed in the 2011 IRS SOI File. The organizations listed in both files were considered to have survived the Great Recession and those not listed in the 2011 IRS SOI File were considered to have not survived the Great Recession. The Tuckman-Chang model was applied to all organizations listed in the 2006 SOI file to classify them as financially not-at-risk, at-risk, and severely-at-risk. A second model was developed by adding the debt ratio to the original Tuckman-Chang model. It was applied to the organizations listed in the 2006 SOI file, resulting in a new list of organizations classified as not-at-risk, at-risk, and severely-at-risk. Binary logistic regression was utilized to test the relationship between the classifications of financially at-risk and financially severely-at-risk and organization survival of the Great Recession. Regression results indicate that both models can predict the survival of a charitable organization.

In this dissertation, I examine the relationship between apartment building leverage and its maintenance investment. Understanding how building debt impacts building maintenance has important implications for the quality of life for renters as well as the asset value. In the first chapter, I provide an overview of the contribution of this dissertation, as well as a survey of the literature. In the second chapter, I introduce a unique data set providing information on both apartment building mortgages as well as apartment building maintenance. I exploit housing code enforcement within US cities to identify instances where a building is maintained poorly enough that it fails to abide by local laws. This section both provides institutional background on housing codes, as well as cross-sectional analysis of apartment mortgages. In the third chapter, I ask the question of whether apartment buildings that are more highly leveraged are more likely to incur code violations. I first build a stylized model providing a theoretical prediction that buildings with higher leverage should be less well maintained. I then use a panel of 45 cities throughout the United States to show that buildings with higher loan-to-value ratios are more likely to incur housing code violations. To address endogeneity concerns, I then exploit a natural experiment leading to increases in building leverage for some rent stabilized buildings in New York City, but not others. I show that the shock leads to an increase in code violations for affected buildings relative to controls, and that this effect is concentrated among buildings with high leverage before the shock. These findings are consistent with highly leveraged buildings having poorer levels of maintenance. Finally, in the fourth chapter I conclude and discuss possible avenues for future work on apartment maintenance.

This researcher examined the effect of corporate governance (CG) and corporate social responsibility (CSR) on banking performance in the Central African Economic and Monetary Community (CEMAC) region. The data was obtained from the Worldwide Governance and the World Bank sovereign database from 2003 to 2018. This study employs the z-score to proxy the CSR factors such as labor force participation rate, population density, and renewable energy. The results reveal that the fixed effects model is superior to the pooled ordinary least square (OLS) and the random-effects model. The findings show that CSR has a significantly positive relationship, while CG has a positive but insignificant relation with banking performance in the CEMAC region. It suggests an ineffective implementation of CG strategies in the entire CEMAC region.

This dissertation consists of two essays that examine the role of corporate social responsibility (CSR) in finance. In the first essay, we examine the bondholder wealth effects of socially responsible firms. Using an extensive U.S sample from 2006 to 2016 and two methodologies – corporate yield spreads and bond credit ratings – we provide evidence that proactive environmental and social practices are reflected in the price of corporate bonds. Furthermore, we examine the impact of managerial ownership on the relationship between CSR and bondholder wealth effects. We postulate that higher equity ownership induces managers to take on more firm risk in the interest of shareholders, thereby increasing the company’s default risk. Empirical findings reveal that CSR plays a significant role in reducing the risk premium of corporate bonds and in assessing the credit quality of specific bond issues and that managerial ownership attenuates the negative relation between CSR and bondholder wealth. Results are robust to various controls for firm and bond specific factors, alternative model specifications, and industry membership. The second essay identifies the factors that motivate organizations to invest in corporate social responsibility (CSR). Using a comprehensive sample of publicly traded, non-financial, U.S. domiciled firms for the period between 2006-2016, we identify and examine several firm and CEO characteristics that potentially explain the extent of firms’ devotion to corporate social investments. We find evidence that advertising intensive firms and financially stable firms are more likely to engage in socially responsible activities, while risker firms demonstrate lower levels of CSR. Furthermore, we address the question of whether certain types of CEOs are more likely to invest in CSR by exploring the role of CEO attributes. Empirical results indicate that female CEOs are more intrinsically motivated to undertake long-term investments in socially responsible initiatives pertaining to environmental concerns and diversity issues. We also find support that the CEO compensation structure is more related to the employee relations and environmental concerns dimensions.

In this study, I examine whether companies realize operational benefits from making “targeted auditor switches” (i.e., engaging a new auditor recently dismissed by a competitor company). While prior work provides evidence consistent with companies perceiving that auditor information spillovers are costly, there is sparse extant evidence as to whether auditors actually do transfer operational information across companies. I find that companies that switch to a competitor’s former auditor realize significant subsequent improvements in operating performance, and I provide evidence that the association between targeted auditor switches and improvements in operating performance varies predictably with several across- and within-market factors. In addition, I find that the operational improvements associated with targeted switches are driven by reductions in operating expenditures as opposed to increases in revenues. Collectively, my findings suggest that operational information can be transferred across companies via external auditors and that companies’ concerns over sharing an auditor with a competitor are based on real information spillover costs.

In this paper, I examine data from 2000 to 2019 to assess the impact of banks’ regulations on the U.S. financial institutions’ performance. The first essay examines the impact of the Dodd-Frank Act on the U.S. banking industry. The findings show that the Dodd-Frank Act has a negative impact on banks’ profits, efficiency, solvency and cost of intermediation, the effect is stronger for smaller banks. The act shrinks the advantage of banks that are members of bank holding company compared to standalone banks. Capital requirements are associated with higher profitability, efficiency, and cost of intermediation, while assets liquidity ratio has a negative impact. The second essay examines the impact of abolishing the Office of Thrift Supervision (OTS) on the U.S. savings and loan industry. Under Title III of the Dodd-Frank Act, the OTS is abolished and its responsibilities reassigned to OCC, FDIC, and Fed. Some critics view the Dodd-Frank Act is disproportionately affecting thrifts by keeping the restriction on thrifts’ portfolio structure (QTL test), while the act shrinks some of thrifts’ advantages over commercial banks. My findings show that on average thrifts are less profitable, efficient, and solvent than commercial banks. However, the performance difference between thrifts and commercial banks shrank under the Dodd-Frank Act compared to the period before the act. Nevertheless, after the OTS was abolished, thrifts endured higher cost of compliance.

First chapter examines the link between FDI, trade, capital formation and economic growth in 12 MENA countries using panel analysis for yearly data between the period 2001 to 2017. Using cointegration and Hausman test, our results indicate that, all the variables are stationary at first level, and long run relationship exist between our variables. A model of endogenous growth highlight that MENA countries favored FDI to trade, where trade has negative relation with economic growth. Capital formation and labor has positive and significant relation. We also, address the relation of education level, as we know that increase in Education level will enhance the adoption of foreign technology. The results were consistent with our initial model. Furthermore, we answered the question of whether FDI is a complement or substitute? Our result show that FDI has negative relation with stock market. In other words, FDI is a substitute not a complement to stock market. FDI is positively correlated with stock market liquidity, saving, GDP and political stability. Second chapter explores the long run demand for money and its stability for MENA countries for the period of 2002 to 2016 using annual data. By applying panel cointegration approach, the result reveals evidence of cointegration between the variables in the long run. Therefore, an error correction (ECM) is applied to determine the factors that influence real money aggregate(M2). The result show that, export and import have positive and negative effect respectively, increase in exporting will increase the value of the currency, and the opposite is true. Further, all the variables have significant effect in the long run, while GDP affect the demand for money in the short run. The CUSUM test of paraments stability show that money demand function is mostly stable over the period. At individual level, the result change from county to another.

This dissertation contains three essays aimed toward understanding the causes and consequences of firms' demand for debt finance. The first chapter studies how the currency mix of multinational firms' debt responds to relative changes in country-level interest rates. According to the principle of interest rate parity, firms should not respond at all. Relative movements in interest rates should be accompanied by movements in exchange rates that exactly offset the benefits of borrowing in low-rate currencies. However, I find that firms rebalance their debt away from currencies where interest rates rise, and toward currencies where interest rates fall. I examine five reasons why firms might behave this way, and find evidence against three reasons and in support of two. I also find that firms adjust the currency structure of their debt when they have better access to foreign capital markets and more financial flexibility. Finally, declines in foreign policy rates boost investment for firms with the best foreign-market access, but the incremental investment may not occur in the country where rates fall.The second and third chapters show that patterns in local firms' demand for bank finance influence the behavior of individual banks and the structure of the banking industry. Many studies find that bank industrial organization helps structure nonfinancial industries via the credit supply, but these chapters argue that causality also runs in the other direction.The second chapter examines changes in demand for bank finance around the replacement of locally-owned establishments by large national corporations that borrow in bond markets and from money-center institutions rather than from small local banks. This chapter specifically studies the effects of Walmart's entry into a market. I show that Walmart's entry decision is strongly influenced by potential sites' distance from Walmart headquarters in Bentonville, Arkansas, and I take this geographical characteristic as otherwise unrelated to bank behavior. The new Walmart store displaces local competing establishments but does not replace their demand for local bank finance. In the five years after a Walmart store opens, nearby banks expand real estate lending, reduce business and agricultural lending, and become more likely acquisition targets. Surviving banks also grow larger. At the county level, the number of bank branches per population also declines.The third chapter models a profit-maximizing bank in an adverse selection setting where soft information is important and where banks develop industry-specific expertise. In this model, the shape of the distribution of borrowers across industry is of first-order importance. The model predicts that markets where borrowers are concentrated into just a few industries have higher small-bank market share, higher loan rates, lower probability of bank exit through acquisition or failure, and more concentrated local banking markets. Empirical results are consistent with the model's predictions.

This dissertation consists of three essays examining the role of risk diversification in European markets. At the economy level the first two essays seek to identify whether economic integration efforts among European countries result in sharing risks to consumption with regional neighbors, as opposed to global partners. At the firm level, the third essay seeks to understand whether managers of large companies in the United Kingdom choose less financial leverage if they are specifically compensated with more cash bonus as opposed to other forms of performance incentives. In Essay 1, I assess the extent to which European countries diversify consumption risks and share them both within the European region and with major non-European countries. I identify that an empirical model can be obtained from a standard theoretical risk sharing framework, that allows for a direct evaluation of the extent of dependence of a country's own consumption on its own output growth, on regional output growth, and on output growth of the rest-of-world (ROW). The empirical model helps to understand whether growing European regional economic integration changes the patterns of regional and world risk sharing. Using data for 45 European and 15 ROW countries over the 1960 - 2017 sample period, I find that higher levels of risk sharing are associated with growing European Union (EU) and Eurozone (EZ) membership, but Europe's risk sharing with the ROW declines, a possible "competition effect." In Essay 2, I point out how the long run average increase in risk sharing due to growing financial integration is often taken as given. Yet decoupling financial integration from economic integration at large may lead to very conflicting consequences on risk sharing for economically integrated countries. Using stock, money and bond markets, as well as industrial production and CPI data for European countries, I show that financial integration and real integration point in different directions, minimizing the ability to share consumption risks within Europe. Specifically I find that the European Central Bank may have made progress towards integrating money and bond markets, but stock markets are still highly globally influenced. Also real integration in production and prices is low and do not differ among advanced EU and non-EU countries. The findings give a new perspective as to why inter-country consumption risk sharing appears low in several empirical studies. Finally, in Essay 3, the aim of the study is to investigate whether managerial earnings-based incentive influence firms' leverage policy and the extent to which this relationship is conditional on the firm earnings performance. Further, we show how firms' growth opportunities affect managerial cash compensation - leverage relationship. The paper utilize a sample of 213 non-financial and non-utility U.K. FTSE350 firms for the period 2007 – 2015. In examining these issues, we employ several econometric techniques: OLS, FE, Predicted method, and three-stage least squares (3SLS) to robustly deal with the existing leverage – cash bonus simultaneity problem. We find empirical support for our theoretical contention that managerial cash bonus induces managers to implement lower leverage policy. We further observe that the effect of managerial cash bonus on leverage is more pronounced in a well-performing firm. In addition, we find that cash-motivated executives with huge unexploited growth opportunities tend to keep low leverage level. Overall, our analyses show that the widespread usage of earnings-based incentives in the U.K executives’ compensation contract, partly explains the conservative debt policy of the U.K firms.

The dissertation consists of three chapters spanning two areas of finance: corporate finance and institutional investors. In the first chapter, “Board Gender Diversity, Firm Culture, and Female Inventors”, I study how employee's Research and Development (R&D) activity is affected by firm culture. Using board gender diversity as a proxy for female-friendly culture, I find that a greater representation of women in the boardroom is associated with increased productivity and innovation output by female inventors relative to male inventors. Female inventors file more highly cited patents and less uncited patents. The effect is driven by female directors with R&D or high-tech expertise. The results support the notion that women in leadership positions cultivate a more female-friendly firm culture. In the second chapter, “Mutual Fund Preference for Pure-Play Firms” coauthored with Bradford Jordan and Mark Liu, we examine how a firm’s organization form affects mutual fund investments. We show that actively managed mutual funds avoid diluting their industry expertise by holding more pure-play firms. Specifically, mutual funds prefer firms that operate in fewer industries and firms with higher industry beta; this preference is stronger among mutual funds with greater industry expertise. We propose a measure, Pureplayness, as the fraction of a fund's equity invested in pure-play firms. Our results suggest that funds with higher Pureplayness have better risk-adjusted performance. In the third chapter, “Can Mergers and Acquisitions Internalize Positive Externalities in Funding Innovation” coauthored with Thomas Chemmanur and Mark Liu, we find that mergers and acquisitions between innovation users and innovation producers enhance innovation output. The combined firm can share the upfront costs and better appropriate the benefits associated with the innovation.

In my first chapter, I examine how index funds vote their proxies on firms in its index that their family does not hold in its actively managed funds. For a given proxy proposal at a given point in time, I find that an index fund is more likely to oppose management on shares its family does not hold in its active funds than on shares its family does hold in its active funds. I further demonstrate that index fund governance has positive effects on the probability a proposal passes and on shareholder value. In my second chapter coauthored with Will Gerken and Steve Dimmock, we document the prevalence and variety of frauds committed by investment managers. We show that prior legal and regulatory violations, conflicts-of-interest, and monitoring disclosures available via the Security and Exchange Commission’s Form ADV are useful for predicting fraud. Additional tests show that fraud by rogue employees is more predictable than firm-wide fraud, but both types of fraud are significantly predictable. We revisit the fraud prediction model of Dimmock and Gerken (2012) and test its performance out-of-sample (using fraud cases discovered since that article’s publication). We find the model has significant predictive power for the out-of-sample cases. To encourage additional research in this area, we have made the data used in this chapter publicly available at https://doi.org/10.13023/nsjd-rk62. In my third chapter, I find the divergence ratio, the percentage of time funds within a family vote differently from one another on the same proposal at a shareholder meeting, varies significantly across fund families. Funds of families in the highest divergence quintile realize alphas up to 104 basis points higher than funds of families in the lowest quintile. These findings are consistent with the separating equilibrium theory of Evans, Prado, and Zambrana (2017) who find that some families encourage coordination among their funds while others encourage competition.

Courts are considered important in the functioning of markets, and yet, there is limited causal evidence showing this. In my dissertation, I explore the causal role of judicial institutions in facilitating economic development outcomes. In the first chapter of my dissertation, I estimate the causal effects of courts’ effectiveness in backlog resolution on formal sector firm outcomes, illustrating ex-post contract enforcement in local credit markets as an important channel. To show this, I construct a novel panel dataset on court-level variables from 6 million trial-level data across 195 district courts in India and exploit quasi-random variation in judge vacancy for causal identification. There are three key implications of this chapter. First, reducing marginal judge vacancy reduces court backlog by 6%. Second, this stimulates bank lending in local credit markets through improved liquidity from debt recoveries. Third, this affects credit availability, production, and profitability of firms located within the court’s jurisdiction. The results imply an 8:1 benefit to cost ratio of reducing marginal judge vacancy.In the second chapter, I discuss the interaction between legal reforms in bankruptcy resolution and judicial capacity through the enforcement of creditor rights in trial courts on credit allocation in local markets. Poor creditor rights constrain the functioning of credit markets, that subsequently affects the availability of credit for productive uses. Can well-functioning courts facilitate the enforcement of creditor rights? How does this affect credit allocation? To study this, I use a difference in difference research design by comparing districts with high judge occupancy and those with low occupancy, before and after the 2016 national legislation on bankruptcy resolution in India that increased the rights of the creditors over stressed assets. There are three key findings. First, banks reduce lending towards unproductive uses such as lending to defaulting firms and increase lending based on capital efficiency in districts with better judicial capacity. Second, improved creditor rights coupled with better judicial capacity increases repayment. Third, banks are more likely to initiate and witness resolution of debt recovery related litigation in districts with better judicial capacity after the bankruptcy reform, suggesting that enforcement of creditor rights in well functioning trial courts plays an important complementary role. Finally, the chapter concludes by examining credit misallocation, showing that good quality formal institutions are insufficient to fully address existing misallocation.How does judge vacancy affect trial-level and litigant outcomes? Emerging economies like India suffer from state capacity constraints that affect economic outcomes. While insufficiency in the number of public teachers and doctors in providing human capital development services has received increasing attention in economics, capacity constraints in the judiciary has rarely been discussed. In the third chapter, I examine the role of judge vacancy on the proceedings of ongoing trials and subsequent effects on litigant outcomes in India. The system of annual judge assignment to district courts shifts the existing high level of vacancies across courts that varies orthogonally to existing trial and litigant outcomes, enabling causal identification. There are following main findings: first, the duration of trial increases when an ongoing trial experiences judge vacancy relative to other trials in the same court that do not. Second, this shock negatively affects wage bill and decreases the asset value of plaintiff firms whereas the effects are smaller and statistically indistinguishable from zero for defendant firms. Third, the large negative effect for plaintiff firms is likely to occur due to increase in the number of dismissals resulting from vacancy. Given that smaller firms are more likely to use the formal judicial system as a plaintiff in the case of transactional disputes relative to larger firms, weaker judicial capacity disproportionately affects them leading to equity concerns.Through these chapters, I show that judicial institutions play an important role in an economy. My approach to answering these macro questions involves using disaggregated and rich administrative data that enable me to shed light on the underlying mechanisms linking institutional quality and economic outcomes.