Three essays in corporate finance

Huang, Ruidi

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https://hdl.handle.net/2142/105886 Copy

Description

Title

Three essays in corporate finance

Author(s)

Huang, Ruidi

Issue Date

2019-07-02

Director of Research (if dissertation) or Advisor (if thesis)

Almeida, Heitor

Doctoral Committee Chair(s)

• Almeida, Heitor
• Xuan, Yuhai

Committee Member(s)

• Weisbenner, Scott
• Huang, Jiekun

Department of Study

Finance

Discipline

Finance

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

Financial economics, Corporate finance

Abstract

The first essay, the Financial Consequences of Customer Satisfaction: Evidence from Yelp Ratings and SBA Loans, demonstrates the financial and real consequences of customer satisfaction using a novel and comprehensive Yelp dataset. I show that Yelp ratings are significant indicators of business outcomes in a regression discontinuity design setting. A one-half star increase in Yelp ratings leads to a higher probability of receiving SBA loans, better loan terms, and better loan performance. The results are more pronounced when banks have less information about the borrowers. Yelp ratings become less effective when using repeated loan transactions. Lastly, higher Yelp ratings lead to increases in consumer demand and the likelihood of subsequent business opening. In the second essay, Are Open Market Share Repurchase Programs Really Flexible, I show that open market share repurchase programs are not as flexible as expected, utilizing the financial crisis and predetermined variation in program ending dates. Firms with share repurchase programs ending after December 2007 cut real activities more than otherwise similar firms with programs ending before December 2007. The effects are more pronounced in firms that do not depend on banks, without long-term analyst coverage, without credit ratings, and with no new debt or equity issuance. The freed-up capital indeed goes toward share repurchase programs: firms buyback on average 84% of the predetermined amount of the shares. The third essay, ''Trading'' Political Favors:Evidence from the Impact of the STOCK Act, demonstrates the tacit benefits that accrue to both politicians and the firms to which they are connected through stock ownership. Specifically, we show strong evidence that politicians use private information and political favors for financial gains from stock investments in their personal portfolios, and that these favors have a real impact on the value and economic outcomes of the firms in which they invest. To do so, we assemble the stock ownership and trading data for all members of the U. S. Congress from 2010 to 2013 and use the passage of the Stop Trading on Congressional Knowledge (STOCK) Act in 2012 as an experiment to examine changes in politicians' trading performance as well as in firm value and outcomes. We find that prior to the STOCK Act, members of the Congress earn significant abnormal returns on their stock trades, and an increase in their holdings of a firm's stock positively predicts the firm's likelihood of being acquired as well as its revenue and earnings surprises. After the passage of the Act, politicians exhibit no such informational advantage in trading or outperformance. On the firms' side, we show that companies with politician ownership on average lose 1.4% in value during the three-day window around the Act's passage, while firms not owned by politicians experience no abnormal returns. Correspondingly, after the Act's passage, these politician-owned firms lose a significant amount of procurement contracts and government grants and become less likely to be selected by the government into high-profile trade missions compared to during the pre-Act period. We find that these mutual benefits are particularly pronounced for politicians who are powerful and firms that are politically active.

Graduation Semester

2019-08

Type of Resource

text

Permalink

http://hdl.handle.net/2142/105886

Copyright and License Information

Copyright 2019 Ruidi Huang

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