10/13/2022
By Mengchao Ai

The Manning School of Business, Department of Finance, invites you to attend a doctoral dissertation proposal defense by Mengchao Ai on “Three Essays on the Effects of Information and Environment on Corporate Investment and Financing Policies.”

Candidate Name: Mengchao Ai
Date: Thursday, Oct 27, 2022
Time: 1 to 2:30 p.m. EDT
Location: Pulichino Tong Business Center 462
Dissertation Title: “Three Essays on the Effects of Information and Environment on Corporate Investment and Financing Policies”

Dissertation committee:

  • Hieu Phan, Ph.D., Associate Professor of Finance, UMass Lowell (Chair)
  • Steven Freund, Ph.D., Associate Professor of Finance, UMass Lowell
  • Chi Zhang, Ph.D., Assistant Professor of Finance, UMass Lowell
  • Chi Wan, Ph.D., Associate Professor of Finance, UMass Boston

Questions? Please contact Hieu_Phan@uml.edu

Abstract

Firms do not operate in a vacuum. Instead, they constantly interact with their surrounding environment and stakeholders. External information and environment shape corporate policies. My dissertation aims to study the effects of information and environment on two most important corporate policies including investment and financing.

The first essay focuses on whether and how board networks impact firms’ innovation search strategy. Innovation search strategies can be explorative or exploitative, where the former are strategies that investigate unknown territories and are regarded as riskier, and the latter rely on existing know-hows and are considered more conservative. My results show that better connected boards engage in more exploitative innovation search strategies, and this effect is more pronounced for more competitive industries, firms with more busy directors, and firms with more independent directors. Tests using exogenous director retirements and deaths confirm the baseline finding. Board connectedness is also positively associated with high innovation output, impact, efficiency, as well as firm value and performance. Further tests suggest that firms with well-connected boards tend to adopt a conservative innovation approach within the firm but actively acquire targets with patents and impactful innovation output.

The second essay studies how environmental risks induced by the potential inundation associated with sea level rise affects firms’ financial structure decisions. Consistent with the tradeoff theory, I find that firm leverage decreases with inundation risks associated with sea level rise. To establish causality, I consider firms’ relocation of their headquarters, a propensity score matching estimator, and a difference-in-differences estimator around the release of the documentary “An Inconvenient Truth”. My results survive various identification strategies. My results are more pronounced for firms with more geographically diverse operations, firms with more geographically close rivals, and firms that are non-investment grade. My findings highlight firms’ proactive adjustment to long term environmental risks.

The third essay examines whether and how firms adjust their capital structure decisions in response to US states’ passage of data breach disclosure laws. The main finding is that firms significantly reduce their leverage ratio by 3.7 to 4.0 percentage points after the passage of these laws. The effect is stronger for larger and R&D intensive firms. The results are largely consistent with the pecking order theory, which predicts the decreased (increased) usage of leverage (equity) in response to an improvement in firms’ information environment. The results also highlight the importance of considering a wider range of factors in the determination of capital structure in the digital era.