Essays in corporate finance and networks

De Holanda Rocha, Sergio

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https://hdl.handle.net/2142/115639 Copy

Description

Title

Essays in corporate finance and networks

Author(s)

De Holanda Rocha, Sergio

Issue Date

2022-04-17

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

Bernhardt, Dan

Doctoral Committee Chair(s)

Bernhardt, Dan

Committee Member(s)

• Almeida, Heitor
• Kahn, Charles
• Krasa, Stefan

Department of Study

Economics

Discipline

Economics

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Industry downturns
• input-output networks
• amplification
• contagion
• Product market competition
• Stock manipulation
• Short selling

Abstract

This dissertation contains three chapters that study topics on corporate finance and firms' interactions in networks. Below are the individual abstracts. Chapter 1: The Downstream Channel of Financial Constraints and the Amplification of Aggregate Downturns We identify a novel channel through which financial constraints propagate in the production chain. Exploiting recent developments on production network data of US firms, we show that firms experience greater valuation losses during industry downturns when their suppliers are financially constrained. Our baseline downstream amplification effect corresponds to roughly 60% of the horizontal amplification documented in the literature. We find stronger impacts of downturns when: (i) suppliers are more constrained; (ii) firms depend more on specific inputs; and (iii) suppliers are more concentrated. The effects are attenuated or muted at high levels of downstream firms' accounts payable and upstream firms' accounts receivable, suggesting trade credit as a mechanism through which the downstream channel operates. Our findings uncover two network implications of financing constraints: a more severe contagion of negative shocks through supplier-customer links and an amplification of downstream industries' aggregate valuation losses. Our results lend support to policies that facilitate trade credit in upstream segments during crises. Chapter 2: Predatory Stock Price Manipulation We develop a model in which feedback effects from equity markets to firms' access to finance allow uninformed traders to profit by short selling a firm's stock while going long on its competitor. Because this strategy distorts the investment incentives of the firm targeted by short selling to the benefit of its rival, we label it predatory stock price manipulation. Our model shows that predatory manipulation decreases investment efficiency and affects market concentration. Our analysis further unveils product market competition as a channel through which buy orders increase manipulation profits and effectiveness, providing new insights into short sales regulation. Chapter 3: Short selling and Product Market Competition We empirically investigate how short selling affects product market performance. We find that higher short sales of stocks lead to declines in firms' market shares. The effects are stronger in larger firms, concentrated industries, and industries where firms compete in strategic substitutes. Further results suggest that firms' competitive interactions amplify the effects of short selling on market shares via a greater sensitivity of output levels to the release of information contained in stock prices. Our findings are consistent with a managerial disciplining channel in which short interest reveals information of inefficient overreach by firms with market power, leading to downsizing and spin-offs.

Graduation Semester

2022-05

Type of Resource

Thesis

Copyright and License Information

Copyright 2022 Sergio De Holanda Rocha

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