Thesis advisor: Rui Albuquerque / Thesis advisor: Edith Hotchkiss / This dissertation consists of three essays which explorer the interaction between finance and product market choices. In the first essay, “A Corporate Finance Model with Customer Dynamics: The Leverage-Profitability Puzzle,” I develop a dynamic trade-off model with quantity and pricing decisions where firms take into account their short term impact on profitability and long term impact on customer base. The model provides a novel mechanism that explains the leverage-profitability puzzle and makes new predictions about the leverage-profitability relation that are supported in the data. In the second essay, “Quality versus Quantity Strategies in Product Markets,” we study the strategies that monopolistic competitive firms follow as they respond to traditional shocks to technology and to quality-improving shocks. Our main modeling assumption is that demand is more sensitive to quality than it is to market share. This assumption is responsible for having quality shocks be the main driving force for most of what corporations do as opposed to traditional technology shocks. It also helps explain why firms with higher quality products have higher debt and lower credit spreads. In the third essay, “Is Mismeasurement of Real Consumption Due to Product Turnover Relevant for Asset Prices?” I examine the long-standing equity premium puzzle, and test whether mismeasurement in real consumption due to ignoring quality changes embedded in product turnover has an effect. I find that the change in real consumption volatility is not sizable to account for the puzzle. / Thesis (PhD) — Boston College, 2021. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

In emergent high technology industries, entrepreneurs and their new ventures play a critical role in enhancing economic growth. In these industries, we can easily see some new ventures grow more rapidly to outperform their competitors. However, looking beyond the surface, new ventures’ growth path is idiosyncratic. More specifically, when growing, new ventures pursue different paths in terms of 1) which technologies they develop, 2) which products they make, and 3) what markets they enter. The question that has struck me is why high-tech new ventures differ on these key strategic choices. Building on literature on entrepreneurship, strategy, industry evolution, and network, this dissertation tries to answer this important question by focusing on intra-firm factors, more specifically, the individual and structural attributes of new ventures. Types of founder experience and new ventures’ knowledge structure are examined in depth. My three studies, each presented as a separate essay herein, investigate how individual (i.e. founder experience) and structural attributes (i.e. knowledge structure) affect key strategic choices regarding i) product market scope (Wernerfelt and Montgomery, 1988), ii) technological search scope (Katila and Ahuja, 2002), and iii) the types of new products (Sanchez and Mahoney, 1996; Henderson and Clark, 1990), respectively. In each, I discuss the relevant theories, methodology, data sources, results and implications. By investigating intra-firm factors that trigger different entrepreneurial strategies, my dissertation responds to an important call – micro-foundation of strategy formation – thus filling a key gap in the entrepreneurship literature. / Business Administration/Strategic Management

I examine the role of product market relations in information assimilation surrounding corporate earnings announcements. I provide evidence that intra-industry information transfers measured by industry rival earnings announcements account for a substantial portion of the well documented post-earnings announcement drift. While this evidence appears to be most consistent with rational structural uncertainty [Brav and Heaton (2002)] one cannot rule out the possibility of behavioral biases. / Ph. D.

This study introduces industry competition factors to fraud models to examine how competition associates with fraud risk. I argue that industry competition eclipses many firm-level determinants in their association with fraud risk, and that the cost of poor information elevates fraud risk as competition increases. I find that fraud risk is higher for firms in industries with 1) more substitutable products and services, 2) greater threats of new entry, and 3) larger incumbent pools of competitors, and that substitution exceeds every firm-level variable except size in its relevance with fraud risk. Cross-sectionally, I provide evidence that industry-wide non-adoption of advanced cost analytics (i.e. using obsolete, distortionary standard costing practices) may exacerbate the fraud-risk effects of competition, especially product substitution: a one standard deviation increase in substitution associates with over double the fraud risk for firms in industries typified by obsolete costing practices. I also find that different strategies vary in their fraud-offsetting associations dependent on the type of competition most prevalent in an industry. Together, these findings shed light on how the effects of industry competition may subsume or surpass most firm-level fraud determinants and provide evidence of previously unidentified drawbacks of obsolete cost accounting systems. / Doctor of Philosophy / Elements of industry competition help explain a firm's fraud risk. I find that bringing competition variables into firm-level fraud models helps explain a large portion of the firm's fraud risk, and that the effects of competition more strongly associate with fraud risk than most firm-level attributes. The results also indicate that the effects of competition on fraud risk may be even worse in industries where obsolete cost accounting practices remain widespread: the effects of price competition in such industries associates with significantly greater fraud risk than in other industries. Additional findings include the implied fraud-risk-reducing effects of different business strategies, depending on which type of competition is most intensive around a firm. Altogether, this study sheds light on the importance of including industry competition effects when assessing fraud risk, especially when a firm's or its peers' cost accounting system quality is poor and price competition is high.

First Essay: Using a sample of 15,835 completed M&A transactions in U.S. from 1985 to 2015, we document three main empirical results. First, consistent with the notion that the disciplinary effect of competition on corporate management, acquiring firms in competitive industries experience significantly positive announcement returns, while the abnormal returns of acquiring firms in non-competitive industries are insignificant. Second, market competition is correlated to the shareholder value in different types of M&A transaction. Horizontal and vertical integrations have positive announcement returns, while conglomerate integrations have negative announcement returns, irrespective of the condition of market competition. Third, the return of small acquiring firms is higher than the return of large acquiring firms, and this size effect is more profound in non-competitive industries. Second Essay: This paper examines the long-term performance of the reverse merger (RM) transactions in Taiwan stock market. Shell companies tend to conduct private placements to raise equity capital in the year following RM transactions. Based on the intended use of capital, issuers of private placements are classified into three categories: investment, recapitalization, and general corporate purposes. We find that shell companies in the investment category experience better long-term performance in the subsequent three years, which is consistent with the view that RM firms with strategic plans to increase in investments in capital expenditures are signaling profitable investment opportunity. However, shell companies in the recapitalization or general corporate purposes categories experience no or poor subsequent underperformance, suggesting that RM deals in these two categories are speculative in nature and short-sightedness that destroy the long-term shareholder wealth.

Made available in DSpace on 2015-03-05T19:14:42Z (GMT). No. of bitstreams: 0 Previous issue date: 30 / Nenhuma / Um extenso corpo de pesquisa tem identificado diversos fatores sobre os determinantes da estrutura de capital. Várias características das empresas, tais como tamanho, oportunidades de crescimento, lucratividade, escudos fiscais, proporção de ativos fixos, por exemplo, têm sido relacionados como fatores que influenciam a estrutura de capital. No entanto, há poucas evidências empíricas sobre o efeito das condições de mercado sobre a estrutura de capital. (HARRIS; RAVIV, 1991). Brander and Lewis (1986, 1988) e Maksimovic (1988) foram pioneiros ao analisar o uso da estrutura financeira como uma variável estratégica em mercado de produtos competitivos. O propósito desta investigação foi justamente verificar a interação entre a estrutura de capital e a estratégia competitiva em mercado de produtos e insumos. Para isso, foi realizada uma análise dos determinantes da estrutura de capital e da estratégia por meio de um modelo de dados em painel. Além disso, foi estimado um modelo de equação simultânea com uma amostra / An extensive body of research has identified several factors on the determinants of capital structure. Several firm characteristics such as size, growth opportunities, profitability, tax shields, or the proportion of fixed assets, have been shown to affect capital structure. Nevertheless, there is little empirical evidence on the effect of market conditions on the capital structure. (HARRIS; RAVIV, 1991) Brander and Lewis (1986, 1988) and Maksimovic (1988) pioneered the analysis of the use of financial structure as a strategic variable in product market competition. The purpose of this research was to precisely determine the interaction between the capital structure and the strategy in factor-product market. An analysis of the strategy and capital structure determinants using a panel data model was conducted. Moreover, a model of simultaneous equation was estimated with a sample of 207 Brazilian firms. The Least Square (LS), Two-stage Least Squares (2SLS) and Generalized Method of Moments (GMM) have been used

In Chapter 1, the staggered nature of the adoption of interstate bank branching deregulation in the United States is utilized as an exogeneous shock to investigate the managerial incentives involved in corporate socially responsible (CSR) activities. Using Kinder, Lydenberg, and Domini Research & Analytics, Inc. for our CSR measures, we find a significant negative relation between the extent of deregulation and CSR practices, which implies that deregulation-led rising competition in product market makes the non-financial firms more concerned about protecting interests of shareholders than other stakeholders. Specifically, firms with low pricing power tend to significantly reduce their CSR activities. Our results are robust using alternative empirical specifications and CSR measures. Chapter 2 investigates the interaction between price stability and financial stability for “Fragile Five” countries. In the first step, we investigate the causation linkage between price stability and financial stability indicators. In the second step, we analyze the effect of financial stability instruments, lending rate and required reserve ratio, on price stability. We then test the price stability instrument policy rate on financial stability. Empirical findings, in the first step, indicate that there is no meaningful relationship between policy objectives in the short run, while the relation between financial stability and price stability occurs in the longer time frequencies. However, the situation is not valid for all economies. In the second step, we measure the effects of monetary policy tools employed by the central bank of each of the Fragile Five countries. The findings from the analysis that investigates the effects of each policy instrument imply that the policy rate instrument implemented to achieve the inflation target does not affect the financial stability goal. Similarly, the reserve requirement ratio instrument to achieve the financial stability goal does not affect the price stability goal. On the other hand, results give some implication about the negative effects of the lending rate instrument on the inflation targeting objective.

This thesis consists of three self-contained essays about immigrants’ experiences in Sweden. They all focus on the interaction between institutional settings and effects on immigrants’ economic conditions. Essay I examines the effects of changed eligibility rules for disability pension in the 1979 Swedish pension reform on immigrant retirement behavior. The reform made disability pension in the form of basic pension available to a wider group of immigrants. Before the pension reform, the eligibility for a basic pension for foreign citizens living in Sweden was dependent on bilateral and multilateral agreements on social security between Sweden and other countries. Thus, immigrants who were not covered by any of these agreements had no access to a basic pension before the reform. Through the reform, all foreign citizens residing in Sweden were made eligible for a basic pension after a short qualification period. The results indicate a substantial impact on the retirement rate with disability pension on the immigrant group that was made eligible for a basic pension by the reform. These findings confirm previous research showing that the size of the benefit levels in the pension system affects early retirement behavior. Essay II analyzes the impact of the Swedish taxi and bus deregulations on the differences in labor earnings between Swedish born and foreign born workers in these sectors. The changes in the gap in labor earnings that are due to the deregulation are estimated. The results show that there was no significant decrease in the differences in labor earnings between Swedish born and foreign born workers in the bus sector as a result of the 1989 deregulation. As regards the taxi sector, the results show that, before the deregulation, there were only small differences in labor earnings between Swedish born and foreign born workers. After the deregulation, the real labor earnings of foreign born workers decreased substantially more than those of Swedish born workers. However, there was a larger increase in the inflow of foreign born workers than of Swedish born workers into the taxi sector after the deregulation, which may have changed the composition of immigrant workers in this sector. Essay III investigates the impact of becoming a Swedish citizen on annual labor earnings. The study finds a positive impact of naturalization on labor earnings, in particular for immigrants originating from Africa and Asia, an effect than cannot only be attributed to selection into citizenship. A clear trend of increasing labor earnings during the years before becoming a Swedish citizen is found. This trend also continued during the years after citizenship acquisition. The study also suggests that the effects of naturalization on labor earnings are larger for men than for women, and larger for individuals with very low income.

The potential of the Chinese outbound tourism market is substantial; however, research on this market to Canada is limited. This may be due, in part, to the lack of Approved Destination Status (ADS). This study examined the possible perceived image of Canada obtained by potential Chinese tourists, and to compare to the marketing position of Canada by CTC China Division-in effect, to conduct a product-market match between two concepts. Content analysis and an importance and performance analysis were used in the study. A questionnaire distributed at the Beijing Capital International Airport solicited perceptions of tourism in Canada, importance of selected attributes in travel decision making, performance of selected attributes on Canada, and trip preferences. The marketing position of Canada was examined through a content analysis of the promotional materials circulated from CTC China Division in Beijing, China. The coherences and gaps between perceived image of Canada and marketing position of Canada provide some marketing implications. This study concludes that the general tourism image of Canada is vague but positive, which is probably derived from the historically favorable image of Canada in china. Potential Chinese tourists had little knowledge on specific tourism sights; however, they recognized star attractions of Vancouver, Niagara Falls, and Toronto. Potential Chinese tourists prefer slow-paced trips; group tours; two weeks in length; in fall season; featuring mid-budget accommodation, preferably bed-and-breakfasts; on motor coach; visiting nature based sights at majority; and providing foods of various cultures. The current marketing position of Canada reflected through promotional materials by CTC and its partners has coherences in promoting tourism attractions in Canada to the image of Canada. Gaps exist on the promotion of travel issues and unconventional attractions, which inspires the marketing implications. Promotional resources should be allocate to unconventional tourism attractions with consideration rather than the presence of Chinese and mandarin speaking environment in Canada because of Chinese tourists’ demand for culture diversity. Promotion should include more information about travel expense and visas to establish reasonable consumer expectations.

The potential of the Chinese outbound tourism market is substantial; however, research on this market to Canada is limited. This may be due, in part, to the lack of Approved Destination Status (ADS). This study examined the possible perceived image of Canada obtained by potential Chinese tourists, and to compare to the marketing position of Canada by CTC China Division-in effect, to conduct a product-market match between two concepts. Content analysis and an importance and performance analysis were used in the study. A questionnaire distributed at the Beijing Capital International Airport solicited perceptions of tourism in Canada, importance of selected attributes in travel decision making, performance of selected attributes on Canada, and trip preferences. The marketing position of Canada was examined through a content analysis of the promotional materials circulated from CTC China Division in Beijing, China. The coherences and gaps between perceived image of Canada and marketing position of Canada provide some marketing implications. This study concludes that the general tourism image of Canada is vague but positive, which is probably derived from the historically favorable image of Canada in china. Potential Chinese tourists had little knowledge on specific tourism sights; however, they recognized star attractions of Vancouver, Niagara Falls, and Toronto. Potential Chinese tourists prefer slow-paced trips; group tours; two weeks in length; in fall season; featuring mid-budget accommodation, preferably bed-and-breakfasts; on motor coach; visiting nature based sights at majority; and providing foods of various cultures. The current marketing position of Canada reflected through promotional materials by CTC and its partners has coherences in promoting tourism attractions in Canada to the image of Canada. Gaps exist on the promotion of travel issues and unconventional attractions, which inspires the marketing implications. Promotional resources should be allocate to unconventional tourism attractions with consideration rather than the presence of Chinese and mandarin speaking environment in Canada because of Chinese tourists’ demand for culture diversity. Promotion should include more information about travel expense and visas to establish reasonable consumer expectations.