Essays in Corporate Finance
Date of Award
Olin Business School
Doctor of Philosophy (PhD)
This dissertation includes three essays that study topics of diversification discount, corporate investment, and employee stock options. The first essay proposes and tests a novel view that the diversification discount is largely an acquisition discount. I find that the manner in which diversification is achieved, organically or through acquisitions, matters. The diversification discount narrows by 10% to 14% if I account for acquisitions in my broad sample. My narrow sample provides a cleaner setting to identify the impact of growth mode on the discount: firms diversifying through acquisitions experience a significant decline in excess value after becoming diversified, while firms of organic growth do not. When pooled together, the diversifying firms exhibit a value-change pattern which closely tracks that of the acquisitive-growth subsample. This pattern is robust to within-firm comparisons, regressions, and matching estimations. I investigate possible causes and conclude it is consistent with inefficient investment hypothesis. The second essay examines the competitive investments of firms after recession shocks. I show that firms’ strategic investments during the recovery phase of the cyclical downturn induce a compositional shift in investments within industries and help explain the slow economic recovery, thus adding an additional layer of cost to recessions. The third essay explores an alternative signaling theory and tests its implications in the case of firms’ voluntary expensing of employee stock options and I find strong empirical support.
Chair and Committee
Steven Fazzari, Radhakrishnan Gopalan, Mark Leary, Todd Milbourn, Bruce Petersen
Xu, Lan, "Essays in Corporate Finance" (2013). Arts & Sciences Electronic Theses and Dissertations. 261.