11/29/2021
By Hieu Phan

The Finance Department in the Manning School of Business cordially invites you to attend a doctoral dissertation defense by Judy (Dung) Tran on "Three Essays on Corporate Financial Policies."

Date: Wednesday, Dec. 8, 2021
Time: 10 a.m. to noon
Location: Virtual dissertation defense via Zoom
Dissertation Title: "Three Essays on Corporate Financial Policies"

Dissertation Committee Members:

  • Hieu Phan, Associate Professor of Finance (Chair)
  • Steven Freud, Associate Professor of Finance
  • Eunju Lee, Associate Professor of Finance
  • Muhammad Quayes, Associate Professor of Economics

ABSTRACT

My dissertation focuses on the corporate financial policies in the presence of external and internal frictions. The dissertation comprises of three essays. The first essay examines the effects of government policy uncertainty on corporate debt contracting. The second essay studies the relation between the shareholder-creditor conflict of interest and corporate liquidity. The third essay examines the effects of executive compensation on corporate debt maturity structure.

In my first essay, I examine the relation between government economic policy uncertainty and debt contracting of U.S. public firms. I find that policy uncertainty is associated with more stringent debt terms, such as shorter debt maturity, higher cost of debt, and more restrictive debt covenants, and these relations are concentrated in financially constrained firms. Moreover, the negative real effects of policy uncertainty documented in the literature is more pronounced for financially constrained firms. Overall, my evidence suggests that policy uncertainty dampens external financing and exacerbates firms’ financial constraints, leading to their investment delays.

In my second essay, using a merger between a shareholder and a lender of the same industry firm, which results in dual holdings, as a shock to the shareholder-creditor conflict of interest, I find that dual holdings are negatively related to the level of corporate cash holdings and positively related to the value of cash to shareholders. Dual holdings are positively related to new debt financing and corporate investments. Moreover, the positive effects of dual holdings on cash holdings, investments, and value of cash are concentrated in financially constrained firms. The evidence suggests that the incentive alignment between shareholders and creditors facilitates firms’ access to external debt financing with favorable terms, which reduces the need for cash reserves and mitigates the underinvestment problems, especially for firms with financial constraints, leading to an increase in the value of cash to investors.

I my third essay, I use the adoption of the accounting rule FAS 123R applying to stock option compensation as a quasi-natural experiment to examine the effect of stock option compensation on corporate debt maturity structure. The adoption of FAS 123R, which changes the accounting treatment of stock option compensation but not its economic costs and benefits, leads to a significant decline in the use of stock option compensation. I find that corporate debt maturity shortens following the adoption of FAS 123R but there is little change in the cost of debt. Moreover, there is little evidence of a significant relation between the change in stock option-based compensation and the change in debt maturity around the adoption of FAS 123R. Overall, my evidence is consistent with the view that that firms use stock option compensation primarily for accounting benefits rather than motivating managers to take risk that leads to restrictive debt terms as documented by previous studies.