Three Essays on Corporate Finance
Open AccessThe first chapter studies whether firms optimize board diversity using sudden deaths of corporate directors as a quasi-experiment. Employing a multidimensional measure of board diversity, I find a U-shape pattern in board diversity around sudden deaths of directors. The firms’ average board diversity level significantly drops after the unexpected deaths of directors and then goes back to the pre-death level without deviation. Subsample analysis shows that firms are unable to improve board diversity due to frictions in the local director labor market including a lower supply of diverse or harder-to-replace directors. Overall, the results strongly support the supply-side explanation of firms being unable to diversify its board due to labor market constraints rather than the demand side explanation based on CEO preferences, firm characteristics, or industry trends. The second chapter investigates the effect of option listing on firm financing. Following option listing, leverage decreases mainly due to the significant increase in equity issues. This effect is concentrated in firms with low profitability, high information asymmetry, and high trading volume. Furthermore, these firms hold more cash and engage in more acquisitions following option listing. These findings are consistent with the notion that option listing mitigates financing friction by reducing information asymmetry, and that firms time their net equity issuance when the opportunity arises.The third chapter examines the capital structure of firms that are newly added to the S\&P; 500 index. Leverage gradually decreases during the two-year pre-addition period and then increases during the two-year post-addition period, resulting in a U-shaped trend. This trend is more pronounced in financially weak firms and firms facing intense competition for index addition. A similar U-shaped leverage trend exists among firms that compete for addition to the index but not among firms that do not compete for addition that are otherwise similar to added firms. The sharp shift in the direction of the leverage trend after addition is attributable mainly to increases in debt issuance and cannot be explained by mechanical mean reversion of leverage or changes in the cost of capital. The overall results are consistent with firms' strategically reducing leverage to improve financial health temporarily prior to index revisions.
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