This dissertation presents two essays dealing with corporate equity transactions. The first essay concerns an equity issuing transaction, the initial public offering (IPO), and specifically lockups, which restrict sales by pre-IPO shareholders. We improve upon the methodology for testing theory related to lockup length through the use of a multinomial logit as well as explore the reasons for and implications of multiple lockup agreements. We find that multiple lockups are associated with dual class equity structures, high book-to-market values, and more secondary shares offered. Offerings that include multiple lockups are more likely to deviate in (weighted average) length from the typical 180 day lockup term. Additionally, we are the first to associate lockup decisions with long run stock performance. The second essay addresses a corporate equity reducing transaction, the accelerated share repurchase (ASR). In an ASR, the repurchasing firm receives substantially all of the shares subject to the repurchase immediately instead of over a longer period of time as in an open market repurchase (OMR). In this second essay, we investigate whether the immediacy of the ASR allows the firm to increase earnings per share by distributing earnings over fewer shares, and indeed we find that firms that would be expected to fall two or more cents shy of median earnings expectations are very significantly more likely to elect an ASR as compared to an OMR. In contrast, those firms that would be expected to exceed earnings by two or more cents are weakly significantly less likely to elect an ASR. Further, the form of repurchase does not impact earnings performance in the four quarters subsequent to a repurchase. Despite the higher abnormal returns associated with the announcement of an ASR, the market does not appear to be able to tell at the time of announcement whether the repurchase is manipulative. In the long run, manipulative repurchasers perform more poorly than non-manipulative repurchasers, but perform better than those firms that miss expectations.

By definition, cap-weighted indexes place the largest (smallest) weights on the most overvalued (undervalued) securities. Fundamental indexation has recently been proposed as a passive, low-cost strategy that outperforms classical cap-weighted indexes. This dissertation focuses on new alternative weighting schemes based on fundamental indexation and analyzes underlying forces that drive their outperformance. The first essay proposes an alternative weighting strategy based on enterprise-value multiple (EM). Over the period 19722013, the EM-weighted index (Details of the weighting scheme can be referred to appendix) has the lowest tracking error and the highest information ratio when compared with six fundamental-weighted indexes based on book-equity (BE), earnings (E), sales (S), dividends (D), cash-flow (CF) and EBITDA. The EM-weighted index generates an information ratio of 0.73, 35% larger than that of the composite of the fundamental indexes. Further results show that it is the combination of the market information and firms fundamentals, especially the debt information, that drives the outperformance of the EM-weighted index. The second essay is the first to demonstrate that outperformance of smart beta strategies can come from capturing diversification returns embedded in portfolio rebalancing of the strategies. This is different from the traditional argument that outperformance of smart beta strategies is due to their implicit tiling into different risk factors such as value and size. A 3X3 matrix of different weighting schemes is constructed to investigate this phenomenon, which combines market capitalization, equal, and fundamental weighting schemes into two levels - first it is weighted on an industry level and then weighted on a stock level within its specific industry. Results show that the diversification returns can consistently explain outperformance of alternative weighting schemes in the matrix, and it is not subsumed by factors in different asset pricing models. This suggests that when measuring the performance of smart beta strategies, not only should investors pay attention to the factor tiling of these strategies but also be cautious about diversification returns captured by rebalancing embedded in these strategies.

This work contains three essays on empirical pricing. In the first essay, I propose to re-examine the evidence on mutual fund managers' illiquidity and volatility timing ability by using a holdings-based approach, which is free from the artificial timing bias occurred in the traditional return-based timing method. Through testing the timing evidence by the holdings approach, I am able to know to what degree the results in the literature are biased by no-information reasons. In the second essay, I investigate mutual fund managers' skills from their reactions to the observable market condition, which is a relatively overlooked dimension in the literature. I propose to distinguish managers' economic motives form their reaction behavior to the public market illiquidity and volatility condition, which brings us new insight into how managers' private incentive affects their investment behaviors. In the third essay, I try to solve the idiosyncratically puzzle in the literature. I show that equity duration plays as a multiple of discount rate news shock and, therefore, affects equity return volatility. I show that the trend of the implied market duration is consistent with the trend of market idiosyncratic volatility as addressed in Campbell et al. (2001).

<p> The CEO&rsquo;s compensation policy is one of the most important factors in an organization&rsquo;s success. CEO&rsquo;s stock options are awarded to align the interests of the CEO with the interests of the firms&rsquo; stakeholders. However, lack of understanding of the relationship between firm performance and a CEO&rsquo;s stock options could threaten the alignment of a CEO&rsquo;s interests with those of the stakeholders. Grounded in agency theory, the purpose of this correlation study was to examine the relationship between return on equity, return on investment, total annual revenues, and CEOs&rsquo; stock options awards, while controlling for firm size, age of CEO, and CEO tenure. Archival data from 99 U.S. pharmaceutical companies were analyzed using hierarchical linear regression. The results of the hierarchical regression analysis indicated a significant predictive model <i>F</i>(6, 262) = 42.065, <i> p</i> &lt; 0.05, <i>R</i>² = .343. However, in the final model, only firm size and CEO tenure were significant. In addition, there was no significant relationship between return on equity, return on investments, and annual revenues to CEOs&rsquo; stock options. The implications for positive social change include the potential for policy makers to utilize findings in furthering dialogue related to income inequality and feeling of unfair distribution of valuable resources in the society. Pharmaceutical business leaders might affect social change by structuring CEOs&rsquo; compensation based on firm performance, encouraging innovation, and improving employment opportunities in the society.</p>

<p> This paper reexamines the inflation-hedging properties of individual equities. When determining inflation betas for individual equities we use multivariate regressions, which utilize all available data and account for equity market factor and reporting lags in inflation indices. We show how such an approach can even be used to create inflation-sensitive strategies for customized inflation indices. The facet of customization is necessary since different kinds of inflation impact different investors. For example, in retirement an investor is more concerned about medical expenses. We illustrate strategies for the US headline CPI, Forbes Cost of Living Extremely Well Index (CLEWI), and the US Medical Care Price Index. When constructing inflation-sensitive portfolios, besides using equal weighting scheme, we show how alternative weighting schemes can be used alongside the choice of inflation sensitive equities to accentuate inflation sensitivity, by using maximum beta optimization or to manage equity risk exposure&mdash;low volatility and low equity beta as result of using minimum volatility optimization.</p>

This dissertation examines the post-earnings-announcement drift in two essays. In the first essay, computer aided content analysis is used to examine the incremental informativeness of quarterly earnings conference calls for earnings announcement window abnormal returns as well as the post-earnings-announcement drift. We find that conference call linguistic tone is a significant predictor of cumulative abnormal returns (CARs) in both the initial reaction and drift windows. Furthermore, conference call tone dominates earnings surprises over the longer period. Holding unexpected earnings constant, portfolios formed based on differences in call tone have CARs that are significantly different from one another. Returns for calls with a highly positive tone and a poor earnings surprise are essentially unaffected by the negative numerical signal, suggesting that new information is coming to light in the conference call discussion. Call tone matters more for dividend paying firms, illustrating differences in investor behavior based on the level of cash flow uncertainty. Additionally, we find that a context specific linguistic dictionary is more powerful than a more widely used general dictionary (Harvard IV-4 Psychosocial). The second essay is the first study to examine the post-earnings-announcement drift anomaly in a Real Estate Investment Trust (REIT) context. The efficient markets hypothesis suggests that unexpected earnings should be fully incorporated into asset prices soon after being publicly announced. We hypothesize that publicly announced earnings signals may be more certain for REITs due to the presence of a parallel (private) asset market, suggesting less drift for REIT stocks. However, we find a large REIT drift component that is both statistically and economically significant. Furthermore, while the initial earnings surprise response is more muted for REITs, we find that the magnitude of the drift is significantly larger for REITs than for ordinary common stocks (NonREITs). Thus, information does not appear to move between the private and public asset markets in such a way as to render REIT earnings signals more certain than NonREIT earnings signals. / A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Summer Semester, 2010. / Date of Defense: April 23, 2010. / Content Analysis, Uncertainty, REITs, Anomaly, Market Efficiency, Post Earnings Announcement Drift / Includes bibliographical references. / David R. Peterson, Professor Directing Dissertation; Clemon F. Sirmans, Committee Member; James S. Doran, Committee Member.

My study combines the process of asset composition of REITs with the REITs' contribution in real estate mutual fund portfolios. I examine the relationship between property acquisition/disposition and equity REIT performance. I find evidence of abnormal returns around 0.09% on the announcement date. The performance of REITs may determine the level of holdings in real estate mutual funds. I also look into the information content of REIT dividend announcements; does this influence the decision of the real estate mutual fund investment manager to alter their holdings of REITs in the fund? I find evidence of abnormal returns around 0.15% on the announcement date when the dividend announcement date occurs before the earnings announcement date. Prior studies document momentum in REIT returns. Given this momentum, I examine whether real estate mutual funds alter their portfolios based on past performance of the REITs held in the fund. Further, I explore whether the changing composition of portfolios causes momentum in REIT returns and leads to momentum in mutual fund returns. I find evidence of prior REIT performance affecting change in percentage holdings of real estate mutual funds, but no evidence of momentum. I will see if there is any relationship between liquidity of REITs and the change of holdings in the respective portfolios. I find evidence of a relationship between liquidity and mutual fund holdings. This will give the investment advisor a look into management of real estate assets in their respective portfolios. / A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Fall Semester, 2006. / Date of Defense: August 22, 2006. / REIT, Mutual Funds, Momentum, Acquisition / Includes bibliographical references. / David R. Peterson, Professor Directing Dissertation; G. Stacy Sirmans, Outside Committee Member; Gary A. Benesh, Committee Member; William A. Christiansen, Committee Member.

This dissertation studies external financing costs of industrial firms and real estate investment trusts. The first chapter examines investors' reactions to the announcement of seasoned equity offers (SEOs) in the wake of the recent financial crisis. We document announcement effects that are twice as large as the historical norm, and this effect is driven by accelerated SEOs. Prior the crisis, accelerated offers were used for smaller offers and by firms with a more elastic demand curve, whereas after the crisis accelerated offers are larger than before and used by firms with less elastic demand curves. Moreover, accelerated offers are associated with a lack of time for adequate underwriter due diligence, which is especially critical during uncertain economic times. The second chapter examines whether corporate governance mitigates the negative effects of the exogenous shock to financing and investment for real estate investment trusts (REITs) during the 2007 – 2008 financial crisis. We find that net debt issuance, real estate asset growth, and total asset growth experienced significant declines after the onset of the crisis, while net equity issuance only declines for firms with the lowest corporate governance scores. Internal governance measures (e.g. board composition, shareholder rights, and audit quality) alleviate this decline in financing and investment with the effect being more pronounced among financially constrained firms and those that are less cash constrained. From a valuation perspective, strong internal governance is associated with more favorable investor reactions to the announcements of debt and equity offers in the crisis period. The third chapter examines differences in the external financing costs of accelerated and fully marketed SEOs in REITs over the period 1990 – 2013. Using a two-stage endogenous switching regression model that controls for potential self-selection bias, we find that accelerated offers have significantly lower gross spreads and less underpricing than their counterparts, while there does not appear to be a significant difference in the announcement effects of both issuance methods. In particular, the gross spreads and underpricing of firms that utilize accelerated offers are significantly lower translating to costs savings of roughly $10 million per issue. The intended use of proceeds does not differentially affect either announcement effects or the level of underpricing, and post-issue stock returns in the subsequent three months are not significantly different by issuance method. / A Dissertation submitted to the Department of Finance in partial fulfillment of the Doctor of Philosophy. / Summer Semester 2015. / June 30, 2015. / Includes bibliographical references. / C. F. Sirmans, Professor Co-Directing Dissertation; Donald Autore, Professor Co-Directing Dissertation; G. Stacy Sirmans, University Representative; Dean Gatzlaff, Committee Member; David Peterson, Committee Member.

We use increases and decreases in the ranking scores of Fortune’s Most Admired Companies to test the proposition that media shocks can increase (decrease) the value of a manager’s reputational capital and, thus, enhance (diminish) his power to extract corporate resources for private benefit at the expense of shareholders. Consistent with the proposition increases (decreases) in scores are associated with stock price decreases (increases). And, CEOs whose firms experience increases (reductions) in scores experience increases (reductions) in compensation and in job tenure, and their firms undertake more (fewer) acquisitions and the acquisitions are less (more) value increasing. Prior Literature has emphasized the costs financial distress imposes on a firm. In this study, I examine a potential benefit financial distress can provide a firm, aligning the interests of managers and shareholders. I find that financially distressed firms see a 3.5% higher market reaction to the announcement of acquisitions than non-distressed firms. This effect is stronger for poorly governed firms, consistent with the hypothesis that the large reputational cost of failure incentivizes managers to act in the best interest of their firm. / A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Spring Semester 2018. / April 6, 2018. / Includes bibliographical references. / Yingmei Cheng, Professor Directing Dissertation; Tom Zuehlke, University Representative; Don Autore, Committee Member; Baixiao Liu, Committee Member.

The broad aim of this dissertation is to explain some puzzling phenomena in Finance and Macroeconomics, focusing on the role of (1) government guarantee, (2) Inflation-Linked Bonds (ILBs) and (3) models with ambiguity and learning. I explore their quantitative and qualitative influences on consumption, investment and financing decisions. The first chapter analyzes the effect of government guarantee cost as a new incentive to issue ILBs. During a political decision or reform process, a government typically has to provide some form of compensation to avoid noncompliance. The cost of this guarantee could be significant, and issuing ILBs instead of providing this guarantee would be a way for the government to avoid this cost. The model with this new feature provides a mechanism to explain why some countries issue ILBs with low inflation and also justifies why countries typically only issue small amounts of ILBs compared to nominal bonds, neither of which practices is well explained by the previous literature. The second chapter introduces ambiguity and learning into a portfolio-choice model to explain some puzzling stylized facts, especially the "hump-shaped" share in risky asset in relation to age. I find that the ambiguity over labor income will make the agent not invest much in risky assets at the beginning of the working life. As the agent approaches retirement, there are two partially offsetting effects. First, the learning mechanism gradually solves the uncertainty. Second, the value of the bond position implicit in his human capital decreases. Eventually, this second effect prevails, and hence explains the hump-shaped stock allocation of the agent's life-cycle profile. The third chapter discusses the role of ILBs in China's pension reform. Firstly it reviews the current problems of China's pension structure so as to find ways to improve the conditions of Chinese pensioners. In particular, I argue that the government could issue ILBs. Then by conducting a simulation using China's macro and financial data, I show that the ILBs will provide the investor with a significantly better risk-return trade-off.