Essays On Corporate Finance

Corporate strategies have always been an important part of the Finance literature. Firms and corporations constantly update their strategies and adopt new ways to combat the ever-changing market dynamics and reap benefits from various corporate activities. My thesis includes three essays that span over different strategies adopted by corporations and corporate boards to mitigate issues resulting from corporate deals, competition, and regulations. In the first essay, I examine if targets of serial acquirers retain or hire a specific type of financial advisors. Using pairwise matching between target firms and potential financial advisors, I find that 41% of firms targeted by serial acquirers use the financial advisor of a previous target of the same acquirer. After controlling for prior relations and reputation, I find that targets hire these advisors with a significantly higher likelihood than others. These targets earn higher returns and can complete deals sooner. On the other hand, serial acquirers suffer from lower returns. The results suggest that targets adopting this strategy of hiring "repeated advisors" gain an information advantage. The "repeated advisors" collect knowledge about the acquirers from prior deal negotiations and can transfer this information to the later targets. The results also provide a potential explanation for why serial acquirers perform poorly in their later deals. The second essay (with Sungjoung Kwon) studies the choices of corporate venturing by public corporations. While existing literature on corporate venture capital (CVC) primarily focuses on investments through CVC units, corporations frequently make investments in startups directly. We document that between 2000 and 2019, approximately 42% of deals made by U.S. public firms were through direct investments, and 90% of public firms with CVC units also made direct investments in startups. The agency hypothesis predicts that managers use direct investments to entrench themselves. In contrast, the organizational friction hypothesis posits that firms rely on direct investments to address immediate strategic goals. Our findings provide strong support for the organization friction hypothesis. Firms directly invest in startups whose operations are highly correlated with theirs and which are less likely to be potential investment targets of their CVC units. Using a difference-in-differences design around the introduction of Amazon Elastic Computer Cloud, we find that firms increase direct investments (but not investments through their CVC units) when the entry of startups increases. Overall, our findings shed light on choices of corporate venturing under different firm strategies. The final essay investigates the effects of merger objection lawsuits on acquirers and deal outcomes. In recent years these lawsuits have significantly increased in numbers, and a majority of them usually settle with the addition of more information to the proxy statements and substantive attorney fees. Since these settlements do not benefit the shareholders, most merger litigations are deemed as frivolous lawsuits in recent years. In response to this, in January 2016, Delaware Chancery Court introduced In re Trulia ruling, which states that the court will dismiss all lawsuits leading to "disclosure-only" settlements. This phenomenon lowered the massive volume of merger lawsuits faced by firms. Using this quasi-natural shock to the settlements of litigations, I find that acquirers incorporated in the states that adopted this ruling perform more acquisitions post-2016 and complete deals faster. I also find that such deals do not result in negative acquirer returns or higher offer premiums. Overall, the results indicate that this ruling provided some relief for the acquirers from the nuisance of the frivolous lawsuits.

"This dissertation intends to further our understanding of CEOs, economic agents with significant effects on firms, through investigating some of their characteristics, experiences, and actions. In my first essay I investigate how an executive's ability and style is affected by the experience of having previously worked with a Superstar CEO. Using prestigious business media awards to identify Superstar CEOs, I find that CEOs who have previously worked with Superstars achieve the same performance levels as other CEOs. Furthermore, I find that CEOs who have worked with Superstars follow managerial styles that are similar to those used by the Superstar. To mitigate the potential matching between firms and executives, I use Propensity Score Matching and arrive at similar results. However, when higher narcissism is found in Superstar CEOs, the effect is positive on the future performance of the executives. I interpret these findings as evidence that executives do not improve their ability by working with Superstar CEOs but do pick up their managerial styles. My second essay looks into the decision made by CEOs to commit accounting fraud, a decision with adverse effects on the firm and the future career of the CEO. More specifically, I look into the decision to commit fraud in response to equity analysts' earnings targets. CEOs are under significant pressure to meet earnings targets since they proxy for the expectations of the markets and the board of directors of the firm. Using a sample of firms accused of accounting fraud by the SEC over the period 1996-2007, I find that CEOs and their firms are more likely to commit fraud in response to analysts' high expectations. The third essay explores how certain behavioral traits of CEOs affect their decisions at the firm's helm. Particularly, I examine how the CEO's narcissism relates to the firm's innovations. I find that over the period 1992-2006, firms with highly narcissistic CEOs invest more in innovation as measured by R & D and achieve a greater level of innovation production. Furthermore, narcissistic CEOs produce innovation with a performance that is more extreme and volatile in terms of how widespread the innovation's impact is."--Leaves v-vi.