Date of Award

5-2021

Document Type

Campus Access Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Business Administration

First Advisor

Chi Wan

Second Advisor

Rui Li

Third Advisor

Mine Ertugrul

Abstract

My dissertation consists of three related essays on the impacts of financial frictions on corporations. These financial frictions include public corruption and state-level corporate tax. The first and second essays investigate the impacts of U.S. political corruption on firms’ borrowing costs and disclosure policies, respectively. In the first essay, , I find that the loan costs positively associate with corruption, and information asymmetry contributes to this “corruption premium.” These findings suggest that bribes between firms and politicians cause the spillover effects in the loan market. In the second essay, along with my coauthors, I examine the relationship between public corruption in the United States and corporate voluntary disclosure. We find that firms headquartered in more corrupt districts are more likely to issue management earnings forecasts and provide more frequent forecasts. Further, the positive association between public corruption and management forecasts is more pronounced for firms that are more susceptible to corruption-induced uncertainty and for firms with higher ex ante information asymmetry. Taken together, this study suggests that the benefits of voluntary disclosures in response to corruption uncertainty outweigh the costs. In the third essay, I use state corporate tax changes as an exogenous shock to study the tax sensitivity of CEO compensation. I find that CEO equity compensation goes up when taxes increase while maintaining the same level when taxes are cut. CEO pay-for-performance sensitivity also increases when taxes are raised. CEO pay sensitivity to stock return declines when taxes are raised. These findings indicate when taxes are raised, CEO equity incentives align CEO’s interests with the shareholders.

Comments

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