published_or_final_version / Economics and Finance / Doctoral / Doctor of Philosophy

This dissertation addresses concerns regarding corporate activities in relation to agency costs and studies the effect of the market for corporate control. In the first essay, we use the mid-1990s Delaware takeover regime shift as an exogenous shock to examine how the removal of takeover threats affects managerial decisions on corporate financing and investment and how it affects firm value. Based on a differences-in-differences-in-differences (DDD) approach, we find that managers reduce debt financing and increase capital investment when they are protected against hostile takeovers, which is consistent with managerial agency models of capital structure and the free cash flow hypothesis proposed by Jensen (1986). We demonstrate that engaging in these entrenched behaviors consequently destroys firm value. Moreover, our evidence indicates that the effect of the takeover regime shift is more pronounced in firms with fewer institutional holdings or lower managerial ownership, supporting the argument of Jensen (1993) that effective internal control systems can alleviate the negative outcomes of a weakened market for corporate control. The substitution effect of internal controls is more substantial than that of the external product market competition. Finally, we determine that empire building, rather than quiet life, is the main consequence of a weakened market for corporate control. In the second essay, we directly examine the causal relationship between managerial entrenchment and diversification. We demonstrate that more entrenched managers adopt higher levels of diversification than do less entrenched managers. We verify the result by using two-stage least squares (2SLS) regression and treating entrenchment as endogenous. In addition, based on an exogenous change in takeover legislation in Delaware in the mid-1990s, we adopt the differences-in-differences-in-differences (DDD) approach and demonstrate that managers increase diversification activities when they are protected against hostile takeovers. Given that diversification destroys value, these results are consistent with the agency costs explanation of diversification. We then explore the motivations that drive managers to diversify. We document that entrenched managers diversify to gain private benefits and to reduce firm risk. Finally, we demonstrate that CEO equity-based incentives increase when takeover-protected firms diversify, suggesting that firms proactively respond to counterbalance the increased costs associated with discretional diversification, which is consistent with theories of optimal contract. / published_or_final_version / Economics and Finance / Doctoral / Doctor of Philosophy

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This dissertation comprises three essays. In the first essay, I develop a contingent-claims model to investigate the impact of managerial entrenchment on corporate policies and security valuation. The model emphasizes the role that managerial agency issues play in determining both a firm's dividend payout and capital structure. I show quantitatively that self-interested managers' leverage choices deviate from those ex ante maximize firm values. The results suggest that dividend yields are negatively affected by both leverage ratios and managerial entrenchment. They provide implications for empirical research attempting to relate dividend policy to capital structure. In addition, the model offers a new framework to measure managerial entrenchment using observed leverage and dividend payout. / In the second essay, we use a set of structural models to evaluate the price of default protection for a sample of US corporations. In contrast to previous evidence from corporate bond data, CDS premia are not systematically underestimated. In fact, one of our studied models has little difficulty on average in predicting their level. For robustness, we perform the same exercise for bond spreads by the same issuers on the same trading date. As expected, bond spreads relative to the Treasury curve are systematically underestimated, consistent with their being driven by significant non-default components. This is not the case when the swap curve is used as a benchmark, suggesting that previously documented underestimation results may be sensitive to the choice of risk free rate. / In the third essay, we develop a valuation model that simultaneously captures credit risk and interest rate risk, and apply it to study the valuation of putable corporate bonds. We ask what risks put features provide insurance against in practice - credit risk, liquidity risk or interest rate risk - and to what degree? We find that they reduce the components of all three risks in bond spreads. The most important, perhaps surprisingly is default or spread risk, followed by term structure risk. The reduction in the liquidity component is present but rather small.

by Stewart C. Myers, Nicholas S. Majluf. / "September 1981"--p. [1] "Latest revision December 1983."--p. [1] / Bibliography: p. 56-57.

by Stewart C. Myers. / "March 1984." / Bibliography: p.31-33.

M.Comm. / Please refer to full text to view abstract

Social Enterprises are becoming a key economic sector globally, which has led to increased interest from scholars, policymakers, investors, regulators and practitioners alike. There has however not been any consensus and consistency on how to measure their performance. This study aims to address these challenges by proposing a framework that could be used to measure the performance and sustainability of Social Enterprises. The study was conducted by initially reviewing the literature, selecting the most relevant performance criteria from the literature to form the performance measurement framework and finally testing the framework through a qualitative descriptive study of a sample of eight Social Enterprises listed on the Social Stock Exchange in the United Kingdom for the period 1 January 2008 to 31 December 2012. The research further proved that it is possible to measure the performance of Social Enterprises and to standardise those measurements for the sector. In this light the financial performance and sustainability criteria were found to provide meaningful results whereas the social performance criteria were prejudiced to an extent by the absence of standardised social reporting in the sector. Further to this the research study found that: (1) the Social Enterprise sector yielded more stable but lower financial returns relative to the stock market, (2) there were no correlations between the sector, GDP and stock market, (3) the social aims have not been achieved in full and (4) the sector was becoming progressively unhealthier with time. / Dissertation (MBA)--University of Pretoria, 2013. / zkgibs2014 / Gordon Institute of Business Science (GIBS) / MBA / Unrestricted

The Canadian money market dates back to 1935 when Government of Canada treasury bills were first sold and the main impetus to its present status came with the introduction of day-to-day loans in 1954. Until 1954, the money market was used principally by the chartered banks and the Federal Government, and the main functions were to provide the former with liquid assets and the latter with a relatively inexpensive method of financing its activities. In the last decade many other institutions have started to participate in the market. On the borrowing side, provincial and municipal governments, and financial institutions including trust companies, finance companies, investment dealers and commercial banks have joined the Federal Government, and finally in 1958 non-financial corporations began to issue substantial sums of short-term notes. On the lending side are financial institutions wishing to keep a certain portion of their funds liquid and non-financial corporations with temporary excess cash. The last of these borrowers and lenders mentioned, the non-financial corporation, is the concern of this thesis which examines potentiality and use of securities with maturity from one day to three years. To appreciate the potentiality of the money market, the bond market, of which it is part, is first described and pertinent characteristics of bonds in general are discussed. The specific instruments pertaining to the money market are the following: Government of Canada treasury bills and short term bonds; short term provincial and municipal issues; finance company paper; chartered bank deposit receipts, U.S. swaps and acceptances; trust company guaranteed investment certificates; investment dealer loans and buy backs; and international instruments including letters of credit and Euro-dollars. The potentiality of the money market for the non-financial corporation is further enhanced when such activity is integrated with the cash flow of the company. The cash flow itself is affected by peculiarities of the industry such as seasonal peaks and troughs, and by factors related to individual firms, such as capital structure. From published statistical data and 298 responses to the questionnaires circulated by the author, the most pertinent findings were the predominance of Federal Government, bank, and trust company paper, the small difference in yields between different qualities of paper, and that rather than formalized rules for money market activity, corporate dealings were influenced mainly by intangible factors including attitudes of the treasurer regarding safety and yields of the instruments, bargaining between buyers and sellers, limitations imposed by boards of directors and banker relationships. While the factors mentioned above must continue to affect money market decisions a formalized approach is recommended and discussed. This approach can be geared to the limitations established by the intangible factors and industry and firm peculiarities, and it objectively examines the remaining alternatives. / Business, Sauder School of / Graduate