Essays in financial regulation and corporate law

In the first essay, we investigate which provisions, among a set of twenty-four governance provisions followed by the Investor Responsibility Research Center (IRRC), are correlated with firm value and stockholder returns. Based on this analysis, we put forward an entrenchment index based on six provisions - four "constitutional" provisions that prevent a majority of shareholders from having their way and two "takeover readiness" provisions that boards put in place to be ready for a hostile takeover. We find that increases in the level of this index are monotonically associated with economically significant reductions in firm valuation, as measured by Tobin's Q. We present suggestive evidence that the entrenching provisions cause lower firm valuation. We also find that firms with higher level of the entrenchment index were associated with large negative abnormal returns during the 1990-2003 period. Furthermore, we find that the provisions in our entrenchment index fully drive the correlation, identified by prior work, that the IRRC provisions in the aggregate have with reduced firm value and lower stock returns during the 1990s. We find no evidence that the other eighteen IRRC provisions are negatively correlated with either firm value or stock returns during the 1990-2003 period. The second essay investigates the effect the imposition of mandatory disclosure in 1964 on over-the-counter firms had on stock volatility, stock returns and stock synchronicity. This study finds that mandatory disclosure is associated with both a dramatic reduction in the volatility of OTC stock returns and with OTC stocks enjoying positive abnormal returns.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2005

Author dc:creator

• Ferrell, Frank Allen

Advisor dc:contributor.advisor

• Victor Chernozhukov.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/32407

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/32407