Essays in empirical corporate finance

Sarkar, A (2020) Essays in empirical corporate finance. Doctoral thesis, University of London: London Business School.

Abstract

My thesis is composed of four essays in empirical corporate finance. In the first chapter I study the role of multinational firms in the propagation of economic policy uncertainty (EPU) across countries. I find that (multinational) firms hold back investment in a country subjected to higher EPU which they reallocate to projects in other countries. I find the impact to be higher for firms with tighter financial constraint. My findings highlight that multinationals could potentially stabilize the escalation of regional policy uncertainty shocks to global crisis. In the second chapter, using subsidiary-level data for Indian firms and staggered elections across Indian states, I show that political uncertainty's impact on firm performance varies by organizational form. The analysis builds on the idea that a firm belonging to a conglomerate, when exposed to political uncertainty is co-insured by other firms of the group. In states with imminent elections, I find stand-alone firms have relatively low leverage and high borrowing cost. The results are consistent with being driven largely by the (reduced) supply than (subdued) demand for capital. In the third chapter, we provide microeconomic evidence on the link between ethnic frictions and market eciency. We find that managers with substantial riot exposure prior to joining the bank lend relatively less to borrowers from other religion. Our results indicate that lower lending to borrowers from other religion is driven by taste-based discrimination. This bias persists across a bank ocers tenure, suggesting that the economic costs of ethnic conflict are long-lasting, potentially spanning across generations. In the fourth chapter, we examine the eects of chief executive ocer (CEO) turnover in banks. Incoming bank CEOs face problems of information asymmetry because banks operations are opaque and bank risk can change dramatically in a short time. These CEOs may therefore change bank policies to manage their personal risks. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending.