Essays on corporate investment dynamics and complexity

Abstract

This thesis is under the research area of corporate finance. It sees the domain of the interaction between corporate investment dynamics and complexity, and addresses this subject in detail through three individual studies. Chapter 2 considers the relationship between corporate social responsibility (CSR) and organizational complexity. Based on a panel dataset of US firms, this study uncovers that the increased organizational complexity changes the traditional environment of firms. To defend against the drawbacks of increasing organizational complexity, firms may use CSR as a strategic tool to help them survive. To be more precise, this study finds direct empirical evidence to support that along with the increased organizational complexity, firms would improve their CSR performances. Meanwhile, the impact of organizational complexity on CSR is more pronounced in firms with good corporate governance and financial conditions. Additionally, this study also supports the idea that CSR has a positive impact on the financial performance of firms and suggests that organizational complexity could effectively moderate the relationship between CSR and financial performance. Overall, the results of this chapter emphasize that the degree of organizational complexity matters CSR performance of firms. Chapter 3 pays attention to whether and how the initiation of credit default swap (CDS) trading could affect the dividend policy of firms. The empirical results of this study uncover that the relationship between creditors and borrowers would be changed after the CDS trading onset. This would eventually affect the behavior of firms on dividend payouts. In other words, under the protection of CDS contracts, lenders would decrease their monitoring, which ultimately provides freedom for firms to apply more aggressive policies on dividend payouts. This study also reveals that the initiation effect of CDS is stronger on financial distressed, bank-loan-dependent, and long-term institutional shareholder-oriented firms. However, the findings of this study fail to support that the increased payment of dividends is a way for firms to mitigate the information asymmetry produced by CDS trading. In general, the findings of this chapter suggest shareholders could expect high dividend payouts after the firm’s CDS trading onset. Chapter 4 discusses whether and how investment bankers with prior work experience in the industry of the target firm (i.e., industry-experienced investment bankers) would affect announcement returns for acquirer shareholders. Using the manually collected data on the career path of 1,918 investment bankers, the study of this chapter finds that industryexperienced investment bankers have a positive effect on acquirer returns. This positive effect is more prominent when target firms are publicly listed, are from different industries, and are more opaque. Moreover, industry-experienced investment bankers add value to acquirers by creating deal synergies and avoiding overpayment risks in M&As, while their participation demands higher advisory fees for providing advisory services to the acquirer. It also shows that the positive relation between industry-experienced investment bankers and acquirer returns is more pronounced when there is a higher fraction of senior industry-experienced investment bankers within a team. Overall, the results of this chapter emphasize the importance of the investment banker’s industry-specific human capital in M&As.

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Identifiers

ORCID for Tapas Mishra: orcid.org/0000-0002-6902-2326

ORCID for Zhuang Zhang: orcid.org/0000-0001-5369-3144

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