Three essays on corporate finance

Prapan, Ahmed Ameya (2021) Three essays on corporate finance. PhD thesis, University of Glasgow.

Abstract

The primary objective of this thesis is to empirically investigate and offer behavioral explanations to two distinct areas of corporate decision-making: (i) mergers and acquisitions and (ii) corporate cash holdings. Based on the premise that it’s the retail investors who primarily trade during the overnight period, the first empirical study proposes absolute overnight returns (AOR) as a proxy for retail investor attention. AOR plays a vital role in the context of one of the largest and most significant corporate events - merger announcements. The study finds that AOR positively affects the acquirer abnormal returns and abnormal trading volumes. The short-term overreaction is corrected by price reversals in the post-announcement period. The set of results are strongest for bidders with low institutional ownership and bidders that are hard to value. The results further hold for the overreaction hypothesis related to stock swap deals while rejecting the notion that our proxy AOR captures investor sentiment. The second study empirically examines the role of CEO connectedness, the relative position of a CEO in the social network hierarchy on the corporate cash holdings. The study finds that cash holdings are on average higher firms for the firms managed by network-powerful CEOs. Lending support to the CEO power hypothesis the positive association is stronger for firm-year observations with investment spikes, greater financial constraint, weaker corporate governance, low institutional monitoring, and raising cash regimes. The results are robust to a series of tests and alternative explanations. The third study empirically examines the role of CEO connectedness on the value of cash and finds that cash holding is on average less valuable for the firms managed by network-powerful CEOs. In economic terms, a network-powerful CEO on board is associated with a value loss of 44 cents in every $1.00 of cash holdings. Providing support to the CEO power hypothesis the negative association is stronger for firm-year observations with investment spikes, weaker corporate governance, low institutional monitoring, and distributing cash regimes. The results are robust to a series of tests and alternate explanations.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Keywords: Behavioral finance, investor attention, overnight returns, mergers and acquisitions, CEO social network, cash holdings, the marginal value of cash.
• Subjects: H Social Sciences > HG Finance
• Colleges/Schools: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Supervisor's Name: Vagenas-Nanos, Dr. Evangelos and Tsoukas, Professor Serafeim
• Date of Award: 2021
• Depositing User: Mr Ahmed Ameya Prapan
• Unique ID: glathesis:2021-82205
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 21 May 2021 14:33
• Last Modified: 21 May 2021 14:33
• Thesis DOI: 10.5525/gla.thesis.82205
• URI: https://theses.gla.ac.uk/id/eprint/82205