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May 14

Essays in Corporate Finance: Recent Trends and Implications

Location:

Gerri C. LeBow Hall
1139
3220 Market Street
Philadelphia, PA 19104

The goal of my dissertation is to better understand recent trends in U.S. financial markets. The first essay examines whether globalization contributed to the recent decline in U.S. public listing rates and increase in industry concentration. Drawing on heterogeneous firm models of trade, I argue that globalization can lead to within-industry reallocation of market shares by disproportionately harming small firms. I empirically test this hypothesis using a differences-in-differences econometric strategy and find that the “China trade shock” led to i) a decline in public listing rates and an increase in concentration ii) by disproportionately harming small firms iii) that were unable to offshore production and remain competitive against Chinese imports. Stock price reactions to the policy change and threat of reversal by President Trump bolster this interpretation. These findings suggest that public companies today are older, larger, and garner a higher portion of industry revenues, in part, because of fundamental changes in the global competitive landscape. The second essay documents the loosing of financial covenants in syndicated loan agreements over the last twenty years. The loosening of covenants is widespread among all types of borrowers and loans and accompanies an increase in loan spreads over the period, suggesting that the trend reflects fundamental changes in the costs and benefits of tight covenants. The final essay explores how creditors use these control rights to influence corporate outcomes. Following a covenant violation, creditors use their bargaining power to tighten acquisition restrictions and limit acquisition activity, particularly deals expected to earn negative announcement returns. Firms that do announce an acquisition while in violation of a covenant earn 1.8% higher stock returns, on average, with the effect concentrated among firms with weak external governance. These results suggest that creditors provide valuable corporate governance that benefits shareholders by reducing managerial agency costs.

Many thanks to Tom’s dissertation committee: • Committee Chair: Eliezer Fich - Professor - Drexel University • Committee Member: Daniel Dorn - Associate Professor - Drexel University • Committee Member: Michelle Lowry - TD Bank Endowed Professor - Drexel University • Committee Member: Greg Nini - Assistant Professor - Drexel University • Committee Member: David Smith - Virginia Bankers Association Professor - University of Virginia

PhD Candidate