Two Essays on Corporate Finance

兩篇關於公司金融的論文

Student thesis: Doctoral Thesis

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Award date6 Jun 2019

Abstract

This dissertation is composed of two essays in corporate finance. One examines the impact of political corruption on corporate innovation. The other one focuses on the interaction between board interlock, financial misreporting and bank loans.

The first essay examines how local political corruption affects firm innovation in the United States. I find that firms located in highly corrupt areas are less innovative as measured by their patenting activities. The results are robust to the inclusion of a broad set of regional characteristics, instrumental variable analysis, matching analysis, difference-in-differences test, and alternative proxies for local corruption. Further analysis shows that reduced innovation incentives due to high extortion risk and decreased threat of competition could be the possible economic channels through which corruption affects innovation. Overall, my results indicate that local political corruption impedes corporate innovation in the US.

The second essay examines the contagion effect of financial misreporting through shared directors from the perspective of creditors in the US. I find that for a firm interlocked with a misreporting firm, loans initiated after the restatement have significantly higher spreads, more covenant restrictions, a more concentrated syndicate structure, and a higher likelihood of being secured. Cross-sectionally, the increase in the loan spreads is significantly higher when the interlocked directors are more responsible for the misreporting, when the restatement is more severe, when the board of the interlocked firm is less independent, and when the interlocked firm and bank have greater information asymmetry. Overall, my results confirm the contagion effect from the creditor’s perspective: Because misreporting increases lenders’ concern that interlocked firms may have low-quality board monitoring and may have also engaged in misreporting, lenders price in the increased information risk and monitoring cost by requiring a higher interest rate.