Essays in corporate finance

Lien, Chen-Ting

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https://hdl.handle.net/2142/120488 Copy

Description

Title

Essays in corporate finance

Author(s)

Lien, Chen-Ting

Issue Date

2023-01-31

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

• Almeida, Heitor
• Zeume, Stefan

Doctoral Committee Chair(s)

Almeida, Heitor

Committee Member(s)

• Irani, Rustom
• Xu, Qiping

Department of Study

Finance

Discipline

Finance

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Corporate Finance
• Seasoned Equity Offering
• Supply Chain Finance
• COVID-19 Economy
• Corporate Liquidity Management

Abstract

This dissertation contains two chapters that study the decision of financial policy in the firms. Below are the abstracts of each chapter: Chapter 1: “Clientele Credit: Theories and Evidence” Clientele credit refers to a firm’s collection of payments from customers based on the firm’s unfulfilled obligations on the future delivery of services or goods. This paper is the first to document that clientele credit is an economically important but overlooked liquidity resource and has a material impact on corporate liquidity management activity. One-third of Compustat firms carry a balance of unfulfilled obligations, and their pre-collected clientele credits account for, on average, 16.8% of their non-cash assets. Many theories potentially explain the sizeable usage of this obligation-based credit, but few comprehensive empirical tests have been conducted. This paper fills the gap. Using the novel, hand-collected data from the off-balance sheet information in 10-K, I test the financing advantage hypothesis and document the following supportive findings. First, creditworthy firms are offered those credits, and the offering is not conditional on information from the bank. Second, the demand for clientele credit centers on firms without access to other credit, such as bank line of credit or trade credit. Third, a firm with better access to finance or with an information advantage is more likely to be the credit provider. Using COVID-19 as a natural experiment that caused a sudden increase in demand for liquidity, I find that constrained firms increase the clientele credit balance on an asset by 4.07% more than non-constrained firms, controlling for other demand for funding. Empirical results overall support the notion of the credit redistribution view and suggest that clientele credit is a viable liquidity alternative. Chapter 2: “Timing the Market: Fake News and Seasoned Equity Offering Decision” This paper studies how fake news makes firm-level stock price impact and examines affected firms’ strategic responses. Using data on fake news identified by the SEC, I analyze the effect of fake news on the price and behavior of affected firms. First, I find that firms treated by falsely positive news, which was produced by their product peers, have significant positive abnormal returns around the news announcement. In addition, the cumulative abnormal returns (CARs) of affected firms persist for a long time. These results suggest that fake news makes a long-standing overvaluation on affected firms’ stock prices. I then study how affected firms react to fake news treatment. By estimating a difference-in-difference model, I find that treated firms increased the probability by 1.6% to file a seasoned equity offering (SEO) after the fake news announcement than control firms, controlling for a series of firm characteristics and fixed effects. Consistent with the overvaluation channel, I find that treated firms are also associated with 79% more filing from insiders to sell stocks. Overall, this paper introduces a new approach relatively exogenous to fundamental information of firms to identify overvalued stocks and sidesteps prior critics on testing the market timing hypothesis.

Graduation Semester

2023-05

Type of Resource

Thesis

Copyright and License Information

Copyright 2023 Chen-Ting Lien

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