ESSAYS IN CORPORATE FINANCE AND FINANCIAL INTERMEDIATION

Abstract

This dissertation is a collection of three essays that investigate the role and importance of discretionary disclosures by managers, stock price comovement and government intervention into financial markets during a financial crisis. Chapter 1 explores the governance implications on a firm’s information environment in the context of discretionary hedging disclosures made by oil and gas companies from 1991 to 2013. Firms with poor governance relative to industry peers are more likely to voluntarily disclose hedging changes and do so more frequently. My findings indicate that discretionary disclosures and governance are substitutes as firms increase their transparency to offset relatively poor governance based on traditional measures of corporate governance. I also provide evidence that poorly (well) governed firms with high institutional ownership are more (less) likely to increase the transparency of their hedging policy changes through discretionary disclosures.

Chapter 2 investigates how a firm’s dividend initiation announcement (positive news) influences stock prices of seemingly unrelated firms within the same metropolitan statistical area (MSA). After accounting for firm, industry, and geographic characteristics, dividend paying firms located in areas with a higher percentage of dividend clientele experience a positive comovement reaction when a seemingly unrelated firm within the same MSA announces a dividend initiation. The positive reactions are specifically for dividend paying firms, while non-dividend payers exhibit no significant response. These results are robust to numerous regression methods and alternative explanations. Collectively, these findings are consistent with the positive-investor attention hypothesis, suggesting positive spillover effects from news announcements for other local firms in the presence of individual investor clientele.

Chapter 3 examines the effects of government guaranteed bank bonds. We find guaranteed bank bonds vastly improve debt liquidity, default risk, and significantly reduce the cost of debt for less liquid, more risky, and shorter-term bond issuances. Greater benefits for riskier and shorter-term bonds are related to the positive term structure of the government insurance premia combined with a negative term structure of credit spreads for weaker banks. These results are consistent with extant theory concerning the financial accelerator, credit spread term structures, and default-liquidity loops.