Essays in finance and applied microeconomics

Song, Huihui (2023) Essays in finance and applied microeconomics. PhD thesis, University of Glasgow.

Abstract

The thesis consists of three independent essays on various aspects of Finance and Applied Microeconomics. The first two essays focus on the impact of princeling connections, while the third essay examines the impact of Universal Credit on children’s mental health. The introduction provides a brief overview of the background, and the conclusion summarizes the main findings across the three chapters.

The first essay explores the impact of princeling connections on regulatory enforcement over Chinese listed firms. I first examine the factors that may influence princelings’ preference to join a particular firm and then test whether enforcement agencies punish princeling‐connected firms less. The findings indicate that princelings tend to join firms with better financial performance, weaker governance structures, fewer Corporate Social Responsibility (CSR) activities, and more investment in innovation. Through Propensity Score Matching (PSM), I match princeling connected and non-connected firms with similar characteristics and find that regulatory enforcement is distorted for princeling‐backed firms due to the privileges and protections they receive. The heterogeneity test reveals that princeling connections have a more significant influence in regions with weaker legal environments, non‐state‐owned enterprises, and firms with lower Return On Assets (ROA) ratios. Moreover, I investigate whether the effects of princeling connections have changed after the Chinese government’s anti‐corruption campaign in 2012, which serves as an exogenous shock. The results demonstrate that even after the anti‐corruption campaign, princeling‐connected firms are still less likely to be punished. The robustness checks provide supporting evidence. In summary, the study suggests that princelingbacked firms enjoy a lower likelihood of punishment, highlighting another advantage of cultivating princeling connections.

Using data from Chinese listed firms between 2008 and 2018, the second essay examines the impact of Private Equity (PE) on portfolios’ Initial Public Offering (IPO) and post‐IPO performance, and the role of princeling connection in this process. First, I explore whether PEs can help portfolio firms perform better. The findings indicate that the involvement of PE in listed firms leads to lower IPO underpricing and improved post‐IPO performance, demonstrating that PE’s market specialization, financial support, and active involvement contribute to enhancing IPO performance. Furthermore, PEs with princeling connections can achieve even lower IPO underpricing compared to PEs without such connections. However, the certification role of princeling‐connected PEs is insignificant in the long run. This suggests that the function of princeling‐connected PEs is primarily to provide political relationships with government regulators rather than additional oversight of their portfolio firms. The results withstand rigorous sensitivity tests, and the effects are heterogeneous in two ways: first, firms backed by reputable PEs experience superior IPO performance; second, the positive effects of PE on IPO performance are more pronounced among non‐state‐owned enterprises. Then I investigate the role of PE during periods of high Economic Policy Uncertainty (EPU). I find that targets backed by non‐princeling connected PEs are more resilient while targets backed by princeling‐connected PEs cannot offer support when facing high policy uncertainty in terms of IPO underpricing and post‐IPO performance. This is consistent with the view that the skills and expertise PE investors accumulate over time, as well as their vast networks of board chairs and directors, can contribute to the better performance of the portfolio firms during the high EPU period. However, princeling‐connected PEs have limited capacity to provide additional support to target firms when faced with high policy uncertainty.

The last essay investigates the impact of Universal Credit (UC) on children’s mental health. It was implemented at different times across various regions, starting in the northwest of England in April 2013. By May 2016, families with children became eligible to apply for UC. Leveraging the effects of UC on children’s mental health, I analyze a dataset consisting of 8,026 observations from 6,215 children (aged 4‐10 years) in England, Wales, and Scotland who participated in the UK Household Longitudinal Study (UKHLS) between 2009 and 2019. Employing a two‐way fixed effects approach, I divide respondents into two groups: children with unemployed parents eligible for UC (intervention group) and children with parents who are not unemployed and thus would typically not be eligible for UC (comparison group). To demonstrate the change in self‐reported psychological distress, measured using the Strengths and Difficulties Questionnaire (SDQ), between the intervention group and the comparison group before and after the introduction of the reform, the parallel trend graph indicates that the prevalence of psychological distress increased in the intervention group after the implementation of UC compared to the comparison group. This graph provides preliminary evidence that Universal Credit has had a negative impact on children’s mental health. Regression results further demonstrate that children experience a 9% higher likelihood of having mental health problems following UC in the treatment groups. Exploring potential mechanisms, the study finds that reduced benefit income does not exert a significant influence on children’s mental health. However, the strict job search requirements associated with UC lead to parents spending less time with their children, resulting in poorer mental health outcomes. Heterogeneity analysis suggests that households with multiple children and households with a single parent are more profoundly affected by UC. The results remain consistent across various robustness checks. The results also highlight that Universal Credit has a larger effect on younger children. Therefore, the findings suggest that the introduction of Universal Credit has led to an increase in psychological distress among recipient children, indicating higher levels of mental health difficulties among those impacted by the policy.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Subjects: H Social Sciences > HG Finance
• Colleges/Schools: College of Social Sciences > Adam Smith Business School
• Supervisor's Name: Spaliara, Professor Marina‐Eliza, Zhang, Dr. Anwen and Lavery, Dr. Paul
• Date of Award: 2023
• Depositing User: Theses Team
• Unique ID: glathesis:2023-83970
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 01 Dec 2023 15:56
• Last Modified: 05 Dec 2023 12:05
• Thesis DOI: 10.5525/gla.thesis.83970
• URI: https://theses.gla.ac.uk/id/eprint/83970