Essays in corporate finance and corporate management

Cunha, Igor

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https://hdl.handle.net/2142/44385 Copy

Description

Title

Essays in corporate finance and corporate management

Author(s)

Cunha, Igor

Issue Date

2013-05-24T22:09:51Z

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

Almeida, Heitor

Doctoral Committee Chair(s)

Almeida, Heitor

Committee Member(s)

• Campello, Murillo
• Pollet, Joshua
• Fos, Vyacheslav

Department of Study

Finance

Discipline

Finance

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Cash Holdings
• Merger and Acquisitions
• Share Repurchase
• Market Timing
• Cost of Capital
• Agency
• Managerial style
• CEO turnover
• CEO fixed effects
• Corporate policy

Abstract

This dissertation contains two chapters that study corporate cash holdings and corporate management. Below are the individual abstracts for each chapter.Chapter 1 is titled: Easy Come, Easy Go: Cheap Cash and Bad Corporate Decisions. This chapter investigates the relationship between the sources of a firm's cash reserves and its investments decisions. I explore the information on the cash flow statement to create the first dataset that organizes firms' cash holdings by whether it comes from: Financing, Operating or Investment activities. This dataset allows me to empirically revisit the free cash flow hypothesis by separating what is actually free cash from what it is not. I find that the overspending evidence previously associated to firms with large cash holdings are driven by firms with high reserves coming from operations. My evidence is consistent with theories of the disciplinary effects of external financing, however it is inconsistent with agency explanations of the behavior of firms with large cash reserves. As an alternative explanation to agency I argue that the manager's perception of the opportunity costs of their cash reserves might be affecting their investment decisions. Chapter 2 is titled: Back in Style: Contrasts in Style and CEO Impact on Corporate Policy. This chapter proposes a new approach to study how corporate policies change upon the replacement of the CEO. We develop a measure that explores the differences in style between the exiting CEO and the incoming CEO. We find that corporate policies change significantly in firms when the new CEO has a different style compared to the previous CEO. Whereas, in firms that the CEO is replace by someone with a very similar style, corporate policies remain largely unchanged. For the most part, our results are not significantly different if we consider exogenous exits (e.g. death, illness, and natural retirements). Thus, the relation between CEOs and subsequent corporate policy is not driven by the characteristics of the exiting CEO, but is instead determined largely by the characteristics of the new CEO. The evidence suggests that boards are endogenously selecting the new CEO to have the characteristics that the board members think will best serve the firm. Thus, it is difficult to separate the role of the board from the CEO when explaining corporate policy.

Graduation Semester

2013-05

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http://hdl.handle.net/2142/44385

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Copyright 2013 Igor Cunha

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