Essays in corporate finance

This thesis presents two essays in Corporate Finance. In the first essay, I use the August 2007 crisis episode to gauge the effect of financial contracting on real firm behavior. I identify heterogeneity in financial contracting at the onset of the crisis by exploiting ex-ante variation in long-term debt maturity structure. Using a difference-in-differences matching estimator approach, I find that firms whose long-term debt was largely maturing right after the third quarter of 2007 cut their investment-to-capital ratio by 2.5 percentage points more (on a quarterly basis) than otherwise similar firms whose debt was scheduled to mature after 2008. This drop in investment is statistically and economically significant, representing one-third of pre-crisis investment levels. A number of falsification and placebo tests suggest that my inferences are not confounded with other factors. For example, in the absence of a credit contraction, the maturity composition of long-term debt has no effect on investment. Moreover, long-term debt maturity composition had no impact on investment during the crisis for firms for which long-term debt was not a major source of funding. Our analysis highlights the importance of debt maturity for corporate financial policy. More than showing a general association between credit markets and real activity, my analysis shows how the credit channel operates through a specific feature of financial contracting. In the second essay, I analyze how institutional investors choose which Initial Public Offering to invest. Using a sample of IPOs from 1980 to 2004, I show that the reputation of the lead underwriter is the most significant variable in this decision process. Using Carter-Manaster rankings of underwriter reputation, I report that a one point increase in the reputation ranking leads to a 2\% increase in institutional investors` holding. Moreover, I test hypotheses about what kind of certification the underwriter is providing. I provide evidence that underwriters certify un-measurable characteristics, in contrast to measurable characteristics, such as those provided in the financial statements of the issuer.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Finance

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2011

Author dc:creator

• Laranjeira, Bruno d.

Contributors dc:contributor

• Campello, Murillo
• Almeida, Heitor
• Weisbenner, Scott
• Bengtsson, Ola

• Corporate Finance
• Debt Maturity
• Initial Public Offering
• Institutional Investors

Statement dc:rights

• Copyright 2011 Bruno de Almeida Laranjeira

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/24413

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/24413