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Essays in corporate finance

Author: Zhang, Lei INSEAD Area: FinancePublisher: Fontainebleau : INSEAD, 2009.Language: EnglishDescription: 229 p. : Graphs ; 30 cm.Type of document: INSEAD ThesisThesis Note: For the degree of Ph.D. in management, INSEAD, May 2009Bibliography/Index: Includes bibliographical referencesAbstract: Traditional theory in corporate finance often assumes that corporate financial policy is solely determined by the demand of firms for capital. Surprisingly, surveys of corporate managers indicate that it is largely governed by the preferences of capital suppliers. My research aims to bridge the dichotomy by empirically studying the supply side of capital and its importance in corporate finance. In particular, I examine investor trading behavior in the equity market as well as in the corporate bond market, and investigate its impact on corporate financial decision-making. Investors, either institutional investors or individual investors, subject to sentiment and/or their own liquidity needs, allocate portfolios in some stylized patterns. Empirical researchers have spotted investment behavior such as style investing, proximity investment, herding etc. The literature extensively focuses on its implications on asset pricing, i.e. the cross-section of stock returns. However, much less research effort has been devoted to understanding the connection between investor-base characteristics and corporate financial policies. In a world with capital market imperfections, e.g. the limits of arbitrage or market segmentation, the supply side of capital should matter for corporate finance. My work analyzes how firms react to frictions and distortions generated from their investor base. It comprises four essays, covering topics related to mergers and acquisitions, dividend policy, corporate financing and capital structure. The first essay studies the means of payment in acquisitions from a cash catering perspective. The second essay explores the impact of investors' style investing behavior on the market for corporate control. The third essay examines the effects of credit supply uncertainty in the corporate bond market on financing and capital structure decisions. The fourth essay studies the insufficient substitubility between bond financing and bank financing induced by financial intermediaries' local investing behavior and examines its implications on corporate finance. List(s) this item appears in: Ph.D. Thesis
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For the degree of Ph.D. in management, INSEAD, May 2009

Includes bibliographical references

Traditional theory in corporate finance often assumes that corporate financial policy is solely determined by the demand of firms for capital. Surprisingly, surveys of corporate managers indicate that it is largely governed by the preferences of capital suppliers. My research aims to bridge the dichotomy by empirically studying the supply side of capital and its importance in corporate finance. In particular, I examine investor trading behavior in the equity market as well as in the corporate bond market, and investigate its impact on corporate financial decision-making.
Investors, either institutional investors or individual investors, subject to sentiment and/or their own liquidity needs, allocate portfolios in some stylized patterns. Empirical researchers have spotted investment behavior such as style investing, proximity investment, herding etc. The literature extensively focuses on its implications on asset pricing, i.e. the cross-section of stock returns. However, much less research effort has been devoted to understanding the connection between investor-base characteristics and corporate financial policies. In a world with capital market imperfections, e.g. the limits of arbitrage or market segmentation, the supply side of capital should matter for corporate finance.
My work analyzes how firms react to frictions and distortions generated from their investor base. It comprises four essays, covering topics related to mergers and acquisitions, dividend policy, corporate financing and capital structure. The first essay studies the means of payment in acquisitions from a cash catering perspective. The second essay explores the impact of investors' style investing behavior on the market for corporate control. The third essay examines the effects of credit supply uncertainty in the corporate bond market on financing and capital structure decisions. The fourth essay studies the insufficient substitubility between bond financing and bank financing induced by financial intermediaries' local investing behavior and examines its implications on corporate finance.

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