This thesis explores the effects of three important factors on a firm's investment and financing decisions, using contingent claim structural model. The first essay investigates how implementation lag impacts investment timing for a levered firm. The main finding is that implementation lag can potentially have a substantial effect on a company’s investment trigger. A crucial determinant of the lag-investment relationship is the fraction of investment cost that has to be incurred upfront. If this fraction is small, investment trigger is a decreasing function of implementation lag and the effect can be economically significant. If this fraction is large, investment trigger can be either increasing or decreasing in lag, but the magnitude of the effect is not large. The second essay investigates how future uncertain growth opportunity impacts a firm's investment timing decision and optimal leverage ratio. The firm has an option to expand profits after the first investment. However, the exercise of the growth option depends not only on the underlying profit flow but also on the uncertain arrival of the growth opportunity. The model illustrates that such uncertainty can significantly impact the initial investment timing for unlevered firm in a non-monotonic way. For levered firm, the future growth uncertainty, along with debt overhang problem, can shape the firm’s financing decision at initial investment. The third essay shows how risk-compensating performance-sensitive debt can be used to mitigate the “overinvestment” agency problem. We show that properly designed performance-sensitive debt can add significant value relative to fixed-coupon debt, and identify the risk-compensation level that maximizes shareholder wealth. The optimal risk-compensation level is found to be smaller than that required to eliminate overinvestment; thus, it is optimal for shareholders to incur some agency cost of overinvestment. / Thesis / Doctor of Philosophy (PhD)

This study investigates how family ownership affects firms' financing decisions in Sweden. The study uses data on publicly listed firms in Sweden from 2014-2019 with 730 firm-year observations. Sweden has a significant portion of family firms and a business environment where control-enhancing mechanisms are used to a large extent. Agency theory and previous studies suggest that higher leverage is applied by controlling families to maintain corporate control and avoid ownership dilution. The reason is that family owners have undiversified portfolios and a strong long-term business commitment. The hypothesis is tested with fixed effects regressions. The findings show that family firms tend to be more leveraged than non-family firms, although family ownership does not impact the financing decisions of Swedish companies. The reason is that higher firm leverage in family-controlled firms is not caused by the family ownership characteristics but rather by firm-specific characteristics, such as larger firm size, lower profitability and higher tangibility, compared to their counterparts. These results imply that Swedish family companies do not apply debt issuance as a control-enhancing mechanism to preserve firm control and avoid ownership dispersion.

There is qualitative and anecdotal evidence that corporate management deviates from received risk management theory. These deviations include: an overall hesitancy to accept projects with greater levels of total risk, increased return requirements compensating for firm-specific risk, employment of hedging strategies, the insuring of diversifiable risks, corporate diversification outside of the industry constraint, and the utilization of portfolio and other variance reducing methods. The literature primarily contributes these behaviors to principal/agent conflicts. Evidence from studies on these deviations support strong arguments based in resource scarcity, cost and availability of capital, employee/community stability, and the increases in bankruptcy costs that these risk management deviation are in the interest of shareholders. When considered in the context of the long-term impact on value, the observed deviations from received corporate risk management theory contribute substantively to the perpetuation of the firm as a long-term store of value. This paper supports two hypotheses: (1) the deviation from received risk management theory by corporate managers is broadly practiced, and (2) these deviations are generally in the interest of shareholders. / Master of Arts

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This dissertation consists of two topics. Chapter 1 examines the relationship between contingent commission use and underwriting performance as well as underwriting risk using data from 2005 to 2016. Top brokers were banned from receiving contingent commissions following the inquiry in 2004 led by Eliot Spitzer, former New York Attorney-General. But the ban raised concerns about whether it created a level playing field across the industry, as smaller brokers continued taking them. In addition, despite the possible conflicts of interest, contingent commissions have also been recognized as a way to better align agent and insurer incentives. Regulators agreed to relax the terms for the leading brokers in 2010, resulting in a less onerous compliance regime for contingent commission use. It is important to study the effectiveness of contingent commission use on improving underwriting performance. This study finds strong evidence supporting the hypothesis that contingent commissions’ usage is associated with better underwriting performance as well as lower underwriting risk. This study also finds a curvilinear relationship between underwriting performance and the level of contingent commission use. Chapter 2 investigates the impact of executive overconfidence on capital structure decisions and reinsurance purchases using a sample of 37 publicly-traded property-liability insurance groups for the period 2002 to 2016. This study finds that insurance firms with overconfident executives have significantly higher leverage ratios than those without overconfident executives. This study also finds evidence that insurance firms with overconfident executives cede more reinsurance, and this evidence is stronger for insurers with more limited business capacity than those with ample business capacity. The results of this study also indicate that overconfident executives prefer internal reinsurance to external reinsurance. This research provides evidence that personality traits of executive impact capital structure decisions and reinsurance purchases for insurance firms, which should be of interest to policyholders and regulators. / Business Administration/Risk Management and Insurance

This dissertation consists of two essays on the impact of managerial entrenchment and ethical corporate citizenship on capital structure decisions of the firm. The first essay examines the impact of managerial entrenchment on financial flexibility and capital structure decisions of firms. Agency conflicts and asymmetric information between managers and shareholders of firms exacerbate managerial entrenchment, which is operationalized using the entrenchment index. The excess cash ratio of a firm over the median cash ratio of firms within the same 3 digits SIC code is the proxy for financial flexibility. Capital structure decisions include the extent and maturity of debt as proxied by debt-to-equity ratio, and average debt maturity respectively. Results indicate that compared to managers who are not entrenched, entrenched managers obtain less rather than more debt, and they use long-term rather than short-term debt maturity. Also, entrenched managers keep more excess cash than managers who are not entrenched. This is especially the case for firms in small and large market value groups compared to medium sized firms. Results do not change before, during, and after the 2008 global economic crisis. The second essay examines the impact of ethical corporate citizenship and CEO power on cost of capital, and firm value in the context of stakeholder theory. Firms listed as World's Most Ethical Companies (WMECs) exemplify ethical corporate citizenship, which is operationalized as a binary variable of 1 for WMECs, and zero for non-WMECs. This paper matches WMECs and non-WMECs control firms in the same 3 digits SIC code, and within 10 percent of total assets. CEO power is primarily measured using CEO pay slice calculated as CEO total compensation as a percentage of top 5 executives of the firm. Powerful CEOs have pay slice above the 50th percentile, and weak CEOs pay slice is below the 50th percentile. Tobin's q is the proxy for firm value, and cost of capital is measured as the market value weighted cost of debt, and cost of equity. Results indicate that WMECs have neither lower cost of capital nor higher Tobin's q than matched control sample of non-WMECs. Firms led by powerful CEOs have significantly lower cost of debt capital, and lower industry-adjusted Tobin's q than firms led by weak CEOs. The negative impact of CEO power on firm value is consistent with agency theory that self-interested CEOs extract firm value for personal advantage, subject to managerial controls. Results have implications for research and practice in capital structure, corporate governance, CEO compensation, and corporate social responsibility. / Doctor of Philosophy / This study consists of two essays. Essay 1 examines the impact of managerial entrenchment on financial flexibility, and leverage decisions of the firm. Managerial entrenchment is measured using the entrenchment index. The excess cash ratio of a firm over the median cash ratio of firms measures financial flexibility. Capital structure decisions include the extent and maturity of debt as measured by debt-to-equity ratio, and average debt maturity respectively. I find that entrenched managers use less debt than managers who are not entrenched. Also, entrenched managers prefer using long-term rather than short-term debt, and they keep more excess cash than managers who are not entrenched. This is especially the case for small and large firms compared to medium sized firms. Essay 2 investigates the impact of ethical corporate citizenship and CEO power on cost of capital, and firm value. Ethical corporate citizenship (ECC) refers to firms' commitment to a culture of ethics, effective governance, leadership, and innovation. ECC is measured as a binary variable of one if a firm is listed on World's Most Ethical Companies (WMEC), and zero otherwise. CEO power is primarily measured using CEO pay slice that is calculated as CEO total compensation as a percentage of top 5 executives of the firm. Powerful CEOs have pay slice above the 50th percentile, and weak CEOs pay slice is below the 50th percentile. WMECs and non-WMECs in the same 3 digits standard industry classification, which have similar total assets as the WMECs are compared. I find that WMECs have neither lower cost of capital nor higher Tobin's q than non-WMECs. Powerful CEOs often utilize their influence to reduce cost of debt capital, but also reduce firm value compared to weak CEOs. Self-interested CEOs who extract firm value for personal advantage partly explains the negative effect of CEO power on firm value.

Sammanfattning Titel: Bostadsrättsbyggande i en lågkonjunktur Ämne: Kandidatuppsats i företagsekonomi, 15 hp Författare: Ebba Fritz & Emmy Rabe Nyckelord: Lågkonjunktur, kapitalstruktur, bostadsmarknaden, hushållens köpkraft Syfte: Syftet med examensarbetet är att undersöka vilka faktorer som påverkar de privata fastighetsbolagens möjlighet att anskaffa kapital för att bygga och sälja bostadsrätter. Studien kommer även att undersöka vilka faktorer som ligger till grund för att färre bostadsrätter byggs i en lågkonjunktur. Metod: I denna studie användes en abduktiv forskningsansats med en kvalitativ metod. Empiri insamlingen baseras på intervjuer från sex respondenter som representerar olika företag som är aktiva i Göteborg. Den teoretiska referensramen har tagits fram med hjälp av relevanta vetenskapliga artiklar, litteratur samt internetkällor med koppling till fastighets- & byggbranschen. Slutsats: Studiens slutsats visar att den rådande marknadssituationen har gjort det svårt för privata fastighetsbolag att anskaffa kapital för att bygga bostadsrätter. Bankernas restriktivitet har visat sig genom skärpta krav på försäljningsgrad vilket har försvårat fastighetsbolagens finansiering av nya projekt. Överskott av osålda bostadsrätter, den förhöjda räntenivån och minskad efterfrågan på grund av ekonomisk osäkerhet har också bidragit till att företagen bygger mindre. Hushållens försiktighet gällande köp av bostadsrätter på grund av höga räntor och psykologiska faktorer har bidragit till återhållsamhet och begränsad investeringsvilja vilket har varit en bidragande faktor till att fastighetsbolagen har haft svårigheter med sin försäljning. Företagen arbetar med strategisk planering för att överleva lågkonjunkturen och positionera sig för framtiden. / Abstract Title: Building condominiums in a recession Subject: Master's thesis in business administration, 15 credits Author: Ebba Fritz & Emmy Rabe Keywords: Recession, capital structure, housing market, household purchasing power Purpose: The purpose of the thesis is to investigate which factors affect the private real estate companies' ability to acquire capital to build and sell condominiums. The study will also investigate which factors are the basis for fewer condominiums being built in a recession. Method: This study used an abductive research approach with a qualitative method. The empirical data collection is based on interviews from six respondents who represent different companies that are active in Gothenburg. The theoretical frame of reference has been developed with the help of relevant scientific articles, literature and internet sources connected to the real estate & construction industry. Conclusion: The study's conclusion shows that the current market situation has made it difficult for private real estate companies to acquire capital to build condominiums. The restrictiveness of the banks has been shown through stricter requirements on the sales ratio, which has made it more difficult for the real estate companies to finance new projects. Surplus unsold condominiums, the increased interest rate and reduced demand due to economic uncertainty have also contributed to companies building less. The caution of households due to high interest rates and psychological factors has led to restraint and limited willingness to invest, which has been a contributing factor to the fact that property companies have had difficulties with their sales. The companies work with strategic planning to survive the recession and position themselves for the future.

The world is experiencing a large degree of change and that is no different for the banking industry in Sweden. With a higher level of communication happening through digital channels combined with the lowering of bank offices, questions arise about how advisors are communicating, what the advisors' demands and recommendations are for firms applying for credit as well as who their customers are and their demands.  The purpose of this paper is to find out what communication channels advisors are using and how they are used. Based on the demands that they present during this communication, what capital structure theory seems to fit the behavior of both the advisor and the firms. Results from this purpose indicate that advisors use a myriad of different ICTs daily and that the use of them is widespread and growing over time, but there still exist situations where physical meetings and contact occur. Furthermore, the demands and actions of the advisor point them towards communicating in preference for the pecking order theory mainly and the use of internal funds, though exceptions exist of the opposite. The demands observed by firms are more widespread but trade-off theory seems to explain the actions of larger firms better with there being a split in the evidence of support of pecking order theories explanation of firms behavior. Previous work related to this field has previously been done by looking at the firm's behaviors in connection to capital structure theory, but to our knowledge, work related to the observed demands seen from a banking advisor's perspective seems to be lacking. Previous work involved in ICT is also apparent but with the nature of the subject and the rapid advancement of the technologies, new information is always needed. Therefore, how the capital structure theories and ICT explain the behavior and communication of advisors and bank customers are a needed area of research.

The share of corporate saving in total saving in South Africa has increased during the past four decades. In this dissertation various economic theories are examined in order to try to explain this change and to determine the possible implications of this change. The conclusion is that the relationship between the investment decision of companies and their savings decision is governed by the determinants of the financing choice of firms. These include cost, risk, control and availability. If, because of these factors, firms prefer to finance investment with retained earnings, there is a relationship between investment and the level of corporate saving. The degree to which the investment decision is dependent on the availability of internal financing will determine the importance of the level of corporate saving in a country. / Oor die afgelope vier dekades het die aandeel van maatskapybesparing in die totale besparing in Suid-Afika toegeneem. In hiersie vehandeling word veskillende ekonomiese teoriee ondersoek ten einde hierdie verandering te probeer veklaar en te probeer vasstel wat die implikasies van hierdie veandering is. Die gevolgtrekking waartoe gekom word, is dat die verband tussen die investeringsbeleid en die maatskappye se besparingsbesluit bepaal word deur faktore wat die finansieringskeuse van die firmas beinvloed, naamlik koste, risiko, beheer en beskikbaarheid. Indien hierdie faktore daartoe lei dat die maatskapye verkies om investering met terruggehoue bespaaring the finansier, is daar 'n verband tussen investering en die vlak van maatskappybesparing. Die mate waarin die investeringsbesluit afhanklik is van die beskikbaarheid van interne finansiering, sal bepaal hoe belangrik die vlak van maatskappybesparing in 'n land is. / Economics and Management Sciences / M.Com.

近幾年針對資本結構的研究發現,在比較先進國家的企業確實有逐步調整回自己的最適資本結構的動作。本論文進一步將研究擴大到開發中國家，發現研究中的32個國家，不論是已開發或是發開中國家的企業，確實都有維持最適資本結構的動作。當資本結構偏離時，企業會逐步地調整回其最適值，然而每個國家調整回最適資本結構的調整速度則存在著差異性。本論文進一步利用國家間法律、會計、制度以及規範面的差異下去分析，發現國家發展程度以及會計制度是影響調整回最適資本結構的速度快慢的重要因子。此外，本論文亦探討融資順位理論及擇時理論的影響，發現加入融資順位理論因子後，調整速度會有相當程度的減緩，而減緩的幅度，則與國家發展程度、法律保護、公司稅率以及會計制度有顯著的關連性。 / Recent empirical literature provides evidences that firms in most developed countries do partially adjust toward their target capital structure. In this paper, we show that no only firms in developed countries, but also those in emerging countries gradually move back to their long-run equilibrium when they are away from it. But the adjustment speeds vary from country to country. We study the determinants of adjustment speeds around the world by focusing on differences in laws and regulations across countries. Our evidences show that firms in countries with common-law tradition, stronger shareholder right, or more completed accounting standards tend to move back to their optimal leverage quicker. Furthermore, we add two variables related to other two main capital structures (pecking order and market timing) in our analysis to capture their effects. Both theories add some information in explaining capital structure, but the impacts differ when applying different leverage measures. When we define leverage ratio as long-term debts dividend by net assets, we observe that pecking order factor lowers the adjustment speed a lot. And the magnitude of decrease on adjustment speed is significantly correlated with market condition, law enforcement, corporate tax rate and accounting standard. More developed countries and countries with stronger law enforcement, higher corporate tax rate, or more completed accounting standards tend to have less reduction on adjustment speed when including pecking order factor, because they have less information asymmetries.