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Date of Award

Spring 5-20-2016

Author's School

Olin Business School


Business - DBA in Finance

Degree Name

Doctor of Business

Degree Type



This dissertation presents three essays in empirical corporate finance. In the first two essays, I examine the effect of analyst coverage network on US firms' corporate decisions and stock return comovement in emerging markets. The third essay discusses the importance of performance pay and CEO functional background in explaining firm performance in the short- and long-run.

In the first chapter, which is a joint work with Armando Gomes, Radha Gopalan and Mark Leary, we show that sell-side analysts play an important role in propagating corporate financial policy choices, such as leverage and equity issuance decisions across firms. Using exogenous characteristics of analyst network peers as well as the “friends-of-friends” approach from the network effects literature to identify peer effects, we find that exogenous changes to financial policies of firms covered by an analyst leads other firms covered by the same analyst to implement similar policy choices. We find that a one standard deviation increase in peer firm average leverage is associated with a 0.35 standard deviation increase in a firm's leverage, and a one standard deviation increase in the frequency of peers’ equity issuance leads to a 29.6% increase in the likelihood of issuing equity. We show evidence that these analyst network peer effects are distinct from industry peer effects and are more pronounced among peers connected by analysts that are more experienced and from more influential brokerage houses.

In the second chapter, I provide evidence that sell-side analyst coverage networks (ACN) play an important role explaining the comovement and excess comovement of stock return across Latin American countries. The study tests empirically the Coverage-Specific Information Spillover Hypothesis (Muslu et al. 2014) of the information generated and disseminated by analysts. Using the pair model for the sample period 2000-2014 and more than 75,000 firm-pair-year observations, I provide evidence that firms connected by analysts in common have higher comovement and excess comovement. In addition, I perform cross-sectional tests to show that firms easily traded by foreign investors are more affected by shared coverage. Also, I find that an important source of across-country excess comovement is the shared coverage by international analysts. Then, I test whether firms followed by the same brokerage houses also face higher stock return comovement. The results suggest that both analysts and brokerage houses matter, but I find the strongest effects associated with the ACN. Finally, I exploit exogenous changes in the ACN around the MSCI Latin American Index reviews to address endogeneity concerns about the effect of ACN on commonalities.

In my last chapter, I use a comprehensive dataset based on the accounting performance goals employed by firms to provide evidence that boards of directors design executive compensation to cater to investor demand. I show that they tie the compensation to accounting metrics (performance pay) preferred by investors in order to improve firm performance and boost the current stock price. Moreover, the results suggest that both performance pay and functional background are important determinants of firm performance. However, functional background has a long lasting impact as compared to performance pay. In addition, the study shows that the effectiveness of linking CEO compensation to accounting metrics depends on CEO tenure. Performance pay is more important for recently appointed CEOs and its effect is also important to improve long-term performance. Finally, I provide evidence that firms obtain better performance when boards of directors hire new leaders and design compensation plans consistent with the functional background of the incoming CEOs.

Chair and Committee

Armando Gomes (Co-Chair), Radhakrishnan Gopalan (Co-Chair), Mark Leary

Available for download on Tuesday, December 12, 2017