Theses and Dissertations - Department of Economics, Finance & Legal Studies

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Executive political preferences and corporate decisions and outcomes
(University of Alabama Libraries, 2015) Rich, Tara; Agrawal, Anup; University of Alabama Tuscaloosa
Corporate decisions and policies made by executives have real effects on the financial valuation of firms. Therefore, the behavior of executives, including underlying causes and subsequent implications, is important in the study of finance. This dissertation investigates executive behavior by examining how the political preferences of executives affect their corporate decisions and the subsequent outcomes. The first essay focuses on the impact of executive political preferences on mergers. Using a rare and hand-collected dataset of executive political donations and CEO retention following mergers, I investigate how shared political preferences between executives of merging firms affect the probability of a merger and subsequent merger outcomes. The second essay focuses on how CEO political preferences affect firm policies and market distribution. In this paper, I use the dataset of executive political donations to examine if Republican-led firms have less risky policies, such as less use of earnings management and lower likelihood of restating earnings. I also test if these less risky policies by Republican managers result in less risky stock return distributions for their firms.
Three essays in behavioral finance
(University of Alabama Libraries, 2018) Young, Michael; Agrawal, Anup; Wang, Albert Yan; University of Alabama Tuscaloosa
Over the last two decades, there has been a significant increase in research related to behavioral finance. As Barberis and Thaler (2002) point out, there are two main aspect of behavioral finance: limits to arbitrage and the effects of psychology. My dissertation will focus on the second aspect, the effects of psychology on individual investor behavior. The first essay examines an important question in this behavioral finance literature: changes in aggregate risk aversion. I use changes in the level of terrorism in the United States as a shock to the aggregate mood of American investors, and examine changes in flows to mutual funds as a proxy for investor risk preferences. After examining investors vulnerable to changes in mood after attacks, and ruling out any possible effect due to changes in expect risk, and changes to expected returns, the first essay concludes that mood driven risk aversion is the likely cause of the change in behavior. In the second essay, we use the insights gained from Essay 1 regarding the change in behavior of U.S. investors following an increase in terrorist attacks. Using household level of equity market participation and individual trading data the second essay examines the array of decisions investors make. The second essay finds that households participate less in equity markets, trade less, but purchase more local stocks in response to terrorist attacks. Additionally, this change in behavior is especially apparent in households where the designated head is a male. Finally, in the third essay we turn away from terrorism, and examine the effects that local NFL team performance on equity market participation. Examining the most popular spectator sport in the U.S. the third essay shows that poor performance by local NFL teams correlates with fewer households in that state owning equity. While previous studies argue that sentiment is the driver of sports related behavior, the third essay find that gambling losses may also play a role in the drop in equity market participation following seasons with a low number of wins. Taken together, the dissertation demonstrates the importance of examining external shocks and the effect they have on the behavior of investors. From terrorism to something as seemingly benign as the NFL, the dissertation adds to the behavior finance literature by identifying new shocks that effect the investing behavior of individuals.
Three essays in corporate finance
(University of Alabama Libraries, 2016) Lim, Yuree; Agrawal, Anup; University of Alabama Tuscaloosa
The dissertation contains three essays in corporate finance. The first essay examines to what extent shareholder gain from activism is the result of wealth transfer from employees of a firm targeted by activism. My baseline results show that target firms experience underfunding in defined benefit employee pension plans after acts of activism. My evidence suggests that the underlying mechanism of this wealth transfer is the agency conflicts between CEO-shareholder alliance and CEO-worker alliance. My identification strategy is to examine possible alternative explanations. My various tests reject alternative hypothesis such as sample attrition, management’s voluntary reforms, activists stock-picking skills, and the changes due to mean reversion. I also find that target firms experience funding shortfalls after activism. It appears that the underlying mechanism is the degree of managers’ entrenchment. Entrenched managers tend to create a worker-management alliance using employee stock ownership. Consistent with this hypothesis, target firms with employee stock ownership in the own company are less likely to experience funding shortfall. In the second essay, analyzing texts in Schedule 13D filings, I address important questions regarding shareholder activism: which forms of activism increases firm value and under what circumstances? I show that investors respond more positively to activist shareholders who use soft activism, communicating with their target firms’ managers or other shareholders rather than a harder approach. Overall, I provide empirical evidence that soft shareholder activism is value-enhancing. In the third essay, I show that a local culture of altruism influences corporate social responsibility (CSR). I measure the level of local altruism by the amount of contributions to charitable, educational, religious organizations, and other cash gifts. I find evidence of a positive relation between local altruism and CSR scores of firms headquartered in a US county. I also find that increased CSR concerns of firms headquartered near altruistic communities have a negative impact on stock returns. Overall, my empirical evidence shows that local culture affects firms’ CSR polices and investors who invest in companies located in altruistic communities react more to the increase in concerns than increase in strengths of CSR.
Three essays in corporate finance
(University of Alabama Libraries, 2015) Adhikari, Binay Kumar; Agrawal, Anup; University of Alabama Tuscaloosa
This dissertation consists of three essays in corporate finance. There are five chapters. In the first essay, we find that local gambling preferences have economically meaningful effects on corporate innovation. Using a county's Catholics-to-Protestants ratio as a proxy for local gambling preferences, we show that firms headquartered in areas with greater tolerance for gambling tend to be more innovative, i.e. they spend more on R&D, and obtain more and better quality patents. These results are supported by several robustness checks, tests to mitigate identification concerns, and analyses of several secondary implications. Investment in innovation makes a stock more lottery-like, a feature desired by individuals with a taste for gambling. Gambling preferences of both local investors and managers appear to influence firms' innovative endeavors and facilitate transforming their industry growth opportunities into firm value. In the second essay, we find robust evidence that banks headquartered in more religious areas take less risk and remain less vulnerable to financial crises. To reduce risk, these banks grow their assets more slowly, hold safer assets, rely less on non-traditional banking, and provide less incentives to their executives to increase risks. Local religiosity has a more pronounced influence on risks among banks for which local investors and managers are more important. But these banks command lower market valuations during normal times. Overall, this paper provides the first empirical evidence of the importance of human behavior in bank risk-taking. In the third essay, I examine the influence of sell-side financial analysts on corporate social responsibility (CSR), and find that firms with greater analyst coverage tend to be less socially responsible. To establish causality, I employ a difference-in-differences (DiD) technique, using brokerage closures and mergers as exogenous shocks to analyst coverage, as well as an instrumental variables approach. Both identification strategies suggest that analyst coverage has a negative causal effect on CSR. My findings are consistent with the view that spending on CSR is a manifestation of agency problem, and that financial analysts exert pressure on managers to cut back such discretionary spending.
Three essays in corporate finance
(University of Alabama Libraries, 2010) Nasser, Tareque; Agrawal, Anup; University of Alabama Tuscaloosa
This dissertation contains three distinct essays in the broad area of corporate finance. The first two essays examine the role of an independent director who is also a blockholder (IDB), a potent governance mechanism, on executive compensation, and corporate financial and investment policies, respectively. The last essay examines insider trading in takeover targets. The first essay examines three issues. First, we investigate the determinants of an IDB's presence in a firm. Second, we examine the relations between IDB presence and (1) the level and structure of CEO compensation, and (2) CEO turnover-performance sensitivity. Third, we analyze if IDB presence is related to firm valuation. Our findings suggest that the presence of an independent blockholder on the board promotes better incentives and monitoring of the CEO, and consequently leads to higher firm valuation. In the second essay, we examine how the presence of an IDB affects: (1) four key financial and investment policy choices of a firm: the levels of cash holdings, dividends, investments and financial leverage, and (2) firm risk. We also examine how the market values IDB presence and changes in various policy choices associated with IDB presence in a firm. We find that firms with IDBs have significantly lower levels of cash holdings, dividend yields, repurchases, and total payout, but higher levels of capital expenditures. We also find that firms with IDBs have lower risk. Overall, IDB presence appears to reduce agency problems between managers and shareholders. The third essay brings large-sample evidence on whether the level and pattern of profitable insider trading before takeover announcements is abnormal for a broad cross-section of targets of takeovers during modern times. We find an interesting and subtle pattern in the average pre-takeover trading behavior of target insiders. While insiders reduce both their purchases and sales below normal levels, their sales reduce more than purchases, leading to an increase in net purchases. This pattern of `passive' insider trading is confined to the six-month period before takeover announcement, holds for each insider group, for all measures of net purchases examined, and in certain sub-samples with less uncertainty about takeover completion.
Three essays in corporate finance
(University of Alabama Libraries, 2009) Jeon, Jin Q; Ligon, James A.; University of Alabama Tuscaloosa
This dissertation contains three essays in corporate finance. The first essay investigates the size and relative impact of termination fees utilized in merger agreements using a sample of 1,702 M&A deals involving U.S targets between 2001 and 2007. We find that the size of termination fees is widely distributed ranging from less than 1% to larger than 6%. The empirical results show that low or moderate fees do not eliminate post-bid competition, while large fees do. Also, a large fee significantly reduces the probability that deals with a high premium are consummated. In addition, the announcement returns are significantly lower for deals including termination fees larger than 5%. Overall, the paper provides new evidence that low- or moderate-size termination fees serve as efficient contractual devices, while large fees reflect target managers' self-interest and are less beneficial to shareholders wealth. Essay two focuses on a mechanism through which foreign investors affect corporate policy in emerging economies. We hypothesize that foreign investors who provide effective monitoring may affect corporate policy through pushing for a greater proportion of outsiders or by nominating their own representatives on the board of directors. Using the unique features of foreign ownership in Korea, we find that firms with an increase in foreign ownership are more likely to increase the fraction of outsiders and foreign directors on the board in the subsequent year. Increased board independence in response to a pressure from foreign investors results in a significant change in payout and investment policy, and an increase in firm performance. In the third essay, we study the effect of the co-managers in the syndicate on expected flotation costs using 1,775 completed and 164 withdrawn seasoned equity offerings (SEOs) from 1997 through 2005. The results show that highly reputable underwriters and commercial banks, when they serve as co-managers, significantly reduce expected flotation costs, while the effect of the number of co-managers is largely insignificant. Our results are consistent with a notion that highly reputable underwriters and commercial banks serving as co-managers enhance a certification role, reduce information asymmetries and, as a result, lower SEO flotation costs.
Three essays in corporate finance
(University of Alabama Libraries, 2017) Choi, Daewoung; Mobbs, Houston Shawn; University of Alabama Tuscaloosa
My dissertation focuses on three essays. The first essay studies the effect of the 2006 compensation disclosure rules on the market for CEOs by providing additional information about CEOs’ marketability. Using unique hand-collected data on compensation peers, we find CEOs who are more frequently cited as compensation peers by other firms are more likely to leave their firms or to receive compensation increases, especially in the equity-based component of total pay. The second essay studies the dynamics of compensation peers by identifying two groups of firms: 1) Those who adjust peer groups more frequently (Active firms), and 2) Those who adjust peer groups less frequently (Non-Active firms). I find while Active firms benchmark their CEO’s pay against peer pay over time, Non-Active firms do not use their compensation peer groups for benchmarking purpose. I also find that Active firms adjust their peers both to reward CEOs for good performance, and to penalize for bad performance. On the other hand, Non-active firms adjust their peer groups only to reward CEOs. The third essay examines the role of investor relations function in the top management team. We provide evidence that firms incorporating the investor-relation function in their top management teams are more likely to have greater analyst coverage, lower analyst forecast dispersion, and to more frequently beat analysts’ estimates. These firms also exhibit lower earnings management, which suggests that firms incorporating investor relations function in their top management team are less likely to manage earnings, but instead manage analyst expectations.
Three essays in finance
(University of Alabama Libraries, 2011) Lu, Xing; Cook, Douglas O.; University of Alabama Tuscaloosa
Essay one, Do Internet Board Messages Predict Stock Returns? An Analysis with Explicit and Intensive Board Postings, tries to discover whether postings on message boards predict future stock performance. While many other studies find significant predictive effects from message volume, they do not find significant predictive effects from message content, which is the most important and meaningful part of online messages. We improve sample selection, using a posting medium that allows for explicit buy/sell signals, focusing on firms with a high intensity of postings, and reducing posting noise by developing a credibility index. After controlling for factors which affect next day returns and incorporating credibility, we find that a bullishness index predicts next day stock returns at a 1% significance level. Essay two, Attention: A Better Way to Measure SEO Marketing Impact, differentiates itself from previous SEO marketing studies by using the first direct attention measure: the user search frequency index from Google Insight for Search (GIS). We find that as an attention proxy, GIS index has significant power in capturing impact around the time of the offering. A one point increase in the pre-issue GIS index change corresponds to a future reduction in the offer price discount by about 3%. In addition, as the only direct measure in SEO research, the GIS index differentiates itself from previous indirect measures by capturing some attention effects that are not captured by previous studies. All effects corresponding to the GIS index change are statistically significant and economically important. Essay three, Online Search Frequency, Information Asymmetry, and Market Liquidity, investigates online search frequency of Google users to explore how traders' response to information asymmetry would predict future market liquidity. The findings show that GIS daily index, as an effective measure of the level of information asymmetry, predicts the future liquidity level. This predictive power is significant at a 1% level. More importantly, the GIS indicators remain strong and significant after including traditional information asymmetry variables in all regressions. Last but not least, we find that the GIS index can capture investors' attention change and provide indications on future stock return.
Three Essays in Investments
(University of Alabama Libraries, 2021) Azimirahmatidoozandeh, Mehran; Agrawal, Anup; University of Alabama Tuscaloosa
Sentiment is an important concept in economics and finance and has been the focus of many studies. Individual investors, professional investors, corporate managers, and households have sentiments on the economy and financial markets which affect their decisions, and hence economic activities and asset prices. Measuring sentiment and determining what factors affect it have significant importance in finance research. My dissertation studies this subject by introducing state-of-the-art methods from artificial intelligence to measure the sentiment in several sources of business text data, that is, public firms’ disclosures and mutual funds’ reports. I investigate the information content, determinants, and the effects of the sentiments on asset prices and investment decisions of investors. In chapter one, we use a novel text classification approach from deep learning to accurately measure sentiment in a large sample of 10-Ks. In contrast to prior literature, we find that both positive and negative sentiments predict abnormal returns and abnormal trading volume around the 10-K filing date and future firm fundamentals and policies. Our results suggest that the qualitative information contained in corporate annual reports is richer than previously found. In chapter two, I study the sentiment of mutual fund managers towards the stock market. Using a direct measure of managers’ market expectations extracted from mutual funds’ semi-annual reports, I find that fund managers extrapolate their funds’ past performance into their market outlook. Funds with managers who have higher market expectation take more risk by increasing their equity holdings and the beta of their equity portfolios, but underperform subsequently. In chapter three, we study the sentiment of mutual fund managers about specific stocks in their portfolios. We study some mutual funds’ practice of voluntarily disclosing investment ideas in their annual reports. The practice involves, at a minimum, expressing views on stocks which fund managers are optimistic about. We find that managers of larger and better performing funds discuss positions that have recently underperformed, those that make up larger portions of their portfolios, and those they have held for longer periods. Our findings suggest that managers disclose these recommendations to boost their own fund performance and to attract additional capital.
Three essays on investments and corporate finance
(University of Alabama Libraries, 2014) Via, Marc Antony; Cook, Douglas O.; University of Alabama Tuscaloosa
This dissertation consists of three essays on investments and corporate finance. The first essay is an investment article focused on factors affecting market makers in the trading of securities, the second essay is a corporate finance article which empirically tests theories of what factors motivate executives to innovate, while the third essay is a corporate finance article which empirically tests theories of why returns are higher in firms with high organization capital investments. For the first essay, I evaluate the shift in the duration of legal insider trading and asymmetric information after Sarbanes Oxley, and find that market makers can identify asymmetric trading via the PIN measure and abnormal volumes and adjust spreads accordingly. This study is the first to consider the duration and accuracy of asymmetric trading and their effects on bid ask spreads. The second essay considers executive incentives to innovate based on firm governance and compensation policies. Basically it seeks to empirically test the theoretical predictions of Manso (2011). Manso theorizes that the individual choice of management to innovate is motivated by a firm tolerance for early failure, as innovations often struggle along their development paths. Ultimately, I find empirical support for many of the predictions of Manso. The third essay addresses how the threat of talented employee departure from firms affects firm risk. Eisfeldt and Papanikoloau (2013) introduced the idea that the threat of the loss of key talent may increase risk for firms with high levels of organization capital. However, they do not provide direct evidence that this risk increase is due to this employment threat, and other literature has suggested that SG&A risk is from management inability or unwillingness to reduce costs. I add to this debate by testing the movement of inventors between firms, and find strong support for the theories of Eisfeldt and Papanikolaou (2013).

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