Essays In Corporate Finance

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Doctor of Philosophy (PhD)
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creditor rights
measurement error
Tobin's q
Finance and Financial Management
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The first chapter Shareholder Recovery and Leverage'' estimates shareholder recovery rate and examines its implications on firm outcomes, including leverage. A positive recovery rate makes shareholders more willing to default, which increases borrowing costs. In response, firms lower leverage ex-ante. This channel helps to match distributions of both leverage and default probabilities. Structural estimation reveals a dramatic change over time in the U.S. bankruptcy system: shareholder recovery rate increased from roughly zero to 29% around the Bankruptcy Reform Act of 1978, and has gradually decreased back to zero. Finally, I show that a positive shareholder recovery rate has a quantitatively large effect on leverage, default probabilities, firm value, and government tax revenue. In the second chapter Measurement Error in Multiple Equations'', co-authored with Karim Chalak, we econometrically characterize the identification regions for the coefficients in a system of linear equations under the classical measurement error assumptions. We demonstrate the identification gain that results from jointly considering the equations, as opposed to separately. We apply this framework to COMPUSTAT data and analyze the effects of cash flow on the investment, saving, and debt of firms when Tobin's q is used as an error-laden proxy for marginal q. Using our framework, we document a considerable identification gain that results from analyzing the investment, saving, and debt equations jointly. Further, the measurement error in Tobin’s q can reconcile the discrepancy with the theories if, and only if, Tobin's q is a noisy proxy for marginal q. If a researcher maintains that Tobin’s q is a moderately accurate proxy for marginal q, then we show that a more elaborate theory or specification must be considered.

Amir Yaron
Lucian A. Taylor
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