This thesis investigates three topics in empirical corporate finance. In the first essay, the focus is on the role of financial constraints in the market for corporate control. In the second and third essays, we explore the effect of personal connections at board and executive levels on corporate credit rating and initial public offering (IPO) underpricing respectively. In the first essay, using a large sample of US acquisitions made between 1985 and 2013, we study the effect of financial constraints on acquisition gains and acquisition likelihood. Our findings show that financial constraints of target companies significantly increase acquisition premiums and abnormal returns for both parties. Our results further show that the presence of financial constraints in the target is one of the most important determinants of a takeover bid. This supports the idea that acquisitions may improve the ability of financially constrained companies to access capital through a better reallocation of resources within segments of the same company (e.g., internal capital market) or through better access to external markets. This would eventually benefit bidders too, as new capital would be invested in valuable growth opportunities that otherwise would expire unexercised. In the second essay, using a large sample of US public debt issues we show that personal connections between directors of issuing companies and rating agencies result in higher credit ratings. We estimate the average effect to be about one notch. The results are robust to several alternative tests including additional controls for managerial traits, placebo tests and propensity score matching. Moreover, our tests on default rates and bond yields do not appear to reflect a favourable treatment by the rating agency. Rather, they suggest that personal connections act as a mechanism to reduce asymmetric information between the rating agency and the issuer. In the final essay, using a large sample of IPOs in the U.S. we show that interpersonal connections between directors and top executives in issuers and underwriting banks result in significantly lower levels of IPO underpricing. We also examine the issuers' long-term stock returns following their IPOs. Our results indicate that the connected companies' long-term returns are not significantly different from the non-connected companies. This suggests that underwriters set lower levels of underpricing for the connected companies not to treat them favourably, but due to better flow of and stronger reliance on soft information and lower risk exposure.

O intento do trabalho é verificar se empresas com ações negociadas na Bovespa enfrentam restrição ao crédito. A análise de painel com base em dados de balanço patrimonial para o período de 2001 a 2005 revelou que, diferentemente do que se esperava, empresas de grande porte apresentam maior dependência dos fluxos de caixa para efetivar seus investimentos. Todavia, há argumentos teóricos na literatura que fundamentam esses resultados, bem como outras evidências empíricas semelhantes. / The paper focuses on evaluating whether Brazilian listed firms have faced financial constraints. Relying on data over the period 2001-2005, a panel data analysis was carried out, but the evidence raised turned out differently from the initially expected: large firms are more sensitive to cash flows to undertake their investment than smaller ones. Nonetheless, the recent literature provides theoretical rationale to deal with those findings as well as empirical evidence consistent with them.

Dans un environnement économique encore fragilisé par la Grande Récession, les PME apparaissent comme un moteur essentiel de l’activité et de l’emploi. Dans cette thèse, j’examine les déterminants et les conséquences des contraintes financières des PME afin d’identifier les formes de financement bancaire les mieux adaptées à leurs situations. Le premier chapitre analyse les effets des modèles d’activité bancaire sur le financement des PME et montre que les banques de trading augmentent les contraintes de crédit de court terme ainsi que les coûts de financement. Surtout, l’externalité négative du trading sur la disponibilité du crédit de court terme est encore plus forte pour les banques fortement capitalisées et dépendantes des produits dérivés. Le deuxième chapitre porte sur l’effet bénéfique de la relation bancaire pour les PME. Nous montrons que les prêteurs relationnels pratiquent des taux plus élevés en période de croissance et des taux plus bas en période de crise. Cependant, en incluant les entreprises monobancaires dans notre analyse, nous constatons que ce mécanisme assurantiel dépend de la capacité des entreprises à diversifier leurs emprunts auprès de plusieurs banques. Enfin, le troisième chapitre se focalise sur les effets réels des contraintes financières. Mes résultats mettent en lumière l’importance capitale du financement de court terme pour l’investissement des PME à travers le canal du besoin en fonds de roulement. Les entreprises qui ont des opportunités d’investissement ne peuvent pas les saisir car les contraintes de crédit de trésorerie les obligent à allouer davantage de cash-flow au financement du besoin en fonds de roulement. / Representing a clear driver for growth and employment, small and medium sized enterprises (SMEs) have gained considerable attention in the aftermath of the Great Recession. In this thesis, I both examine the determinants and consequences of SMEs financial constraints in order to identify the most appropriate types of bank financing for their situations. The first chapter analyzes the effects of trading bank business models on SME finance and shows that trading banks increase both short term credit constraints and funding costs. Importantly, the negative impact of trading-banks on short term credit availability is even stronger for banks with higher capital and derivatives.The second chapter deals with the beneficial effect of relationship lending for SMEs. Following the literature that has investigated the countercyclical effect of relationship lending on interest rates, we show that relationship lenders charge higher rates in good times and lower rates in bad times. However, we include single-banked firms in the scope and find that this insurance mechanism depends on the firm ability to diversify its borrowing.The third chapter focuses on the real effects of financial constraints. While the literature examining the effects of financial constraints on firms’ investment has traditionally ignored loan maturity, my results emphasize the importance of short-term finance for SMEs through the working capital channel. The real effect of short term financial constraints arises when firms with opportunities to invest may be blocked from doing so because rationing may force them to allocate additional cash-flow to finance their working capital needs.

Yes / This paper examines how deviation from firms’ target leverage influences their decisions on undertaking foreign acquisitions. Using a sample of 5746 completed bids by UK acquirers from 1987 to 2012, we observe that over-deviated firms are more likely to acquire foreign targets. Consistent with co-insurance theory, we find that over-deviated firms engage in foreign acquisition deals to relieve their financial constraints and to mitigate their financial distress risk. We also note that foreign acquisitions enhance over-deviated firms’ value and performance, measured by Tobin’s q and return on assets (ROA) respectively. These findings support the view that over-deviated firms pursue the most value-enhancing acquisitions. Overall, this paper suggests that co-insurance effects, value creation and performance improvements are the main incentives for over-deviated firms’ involvement in foreign acquisitions. / Financial support of Zagazig University in Egypt / The full-text of this article will be released for public view at the end of the publisher embargo on 02 Mar 2019.

This dissertation includes two related chapters that analyze financial condition of firms. In the first chapter, I examine the relationship between the firms' level of cash holdings and governance. The findings show that higher levels of cash holdings are significantly related to strong governance. The results also show that firms with strong governance hold asymmetrically higher levels of cash than firms with weak governance when they have high growth opportunities. Furthermore, I also test the impact of financial constraint status of the firm on the level of cash holdings for both good and poorly governed firms separately. The results suggest that strong governance firms hold higher levels of cash to use as financial slack in order to avoid financial distress. In the second essay I examine if a firm's success in leaving distress is explained by firm characteristics and manager decisions. I proxy the managers' decisions by measuring changes in operating, investing, and financing choice variables. Timely decisions with regard to product refinement, proxied by increased investment in research and development and reduction in capital expenditures, increase the probability of successful turnaround. Further the results show that increased financing through additional sale of equity, acquisitions and sale of assets do not help a firm exit financial distress.

The first chapter evaluates the zero-leverage effect on firms' financial constraints. Moreover, using investment- and cash-to-cash-flow sensitivities as financial constraint indicators, the results suggest that unleveraged firms are expected to face lower constraints relative to leveraged firms. Lastly, the results indicate that the zero-leverage effect on firms’ financial constraints is more likely stronger for smaller firms, zero-dividend firms, firms with lower proportions of tangible assets, and growth firms. The second chapter develops a new quantitative measure that reflects the extent to which a firm complies to Shariah relative to the other firms located in a certain region at a certain time. This measure can be customized to be consistent with each investor’s objectives, constraints, and beliefs. We argue that the use of this measure is preferable to the existing use of ratio thresholds for the following two reasons. First, it is more Shariah-appropriate because it provides the Shariah-compliant investor with a clear understanding of the relative compliance status of each firm he wishes to invest in. Second, it can be incorporated into any portfolio optimization model to create a balance between improving Shariah compliance and not compromising investment returns.

La thèse est composée de trois articles de recherche. Basés sur le même fondement théorique et de modélisation, au travers de simulation numérique, les trois essais étudient différents sujets liés à la dynamique des firmes sous l’impact des contraintes financières et des fluctuations macroéconomiques. Respectivement, le premier article explore le mécanisme de sélection de marché, le deuxième se focalise sur le mode d’investissement en Recherche et Développement (R&D) des firmes, et le troisième analyse les effets d’une politique budgétaire discrétionnaire de relance de l’activité sur la dynamique des firmes. Les résultats de recherche montrent que la combinaison des contraintes financières et des fluctuations macroéconomiques peut exercer des effets significatifs sur la dynamique des firmes dans un contexte de compétition de marché. Sous différents angles d’analyse, ces effets peuvent révéler l’inefficacité du mécanisme de sélection de marché, la distorsion de structure de marché à la défaveur des investissements en R&D, et des retombées inégalitaires d’une éventuelle relance économique en période de récession, au désavantage des jeunes et petites firmes. / The thesis is composed of three research articles. Based on a common theoretical and modeling foundation, by means of computational simulation, these three essays study different subjects relating to firm dynamics under the impact of financial constraints and macroeconomic fluctuations. Respectively, the first article explores functioning of market selection mechanism, the second focuses on firms’ Research and Development (R&D) investment patterns, the third analyzes effects of economic stimulus policies on firm dynamics. The research results demonstrate that the combination of presence of financial constraints and macroeconomic fluctuations may have significant effects on firm dynamics in the context of competitive market. From different angles of analysis, the effects could reveal failure of market selection mechanism, market structure distortion which disfavors firms’ R&D investment, and unequal repercussions of an economic stimulus on firms in recession, especially to the disadvantage of young and small ones.

O objetivo do presente trabalho é analisar a presença da restrição financeira nas decisões de investimentos em condições de incerteza de um conjunto de 1223 empresas brasileiras no período de 1986 a 2006. A incerteza é incorporada no modelo de investimento considerando o comportamento das variáveis vendas e fluxo de caixa como um movimento browniano com drift. Além disso, a variável fluxo de caixa é analisada em baixa e alta incerteza, considerando três diferentes medidas para a incerteza: a variação anual do índice Ibovespa, o desvio-padrão de vendas e de fluxo de caixa. Já para considerar o efeito da restrição financeira sobre as decisões de investimento as firmas são agrupadas de acordo com o grau de intensidade de capital, tamanho da firma e grau tecnológico. A estimação dos parâmetros da equação do investimento é realizada considerando-se o modelo misto. O modelo misto, ainda não utilizado em estudos brasileiros na análise do comportamento das decisões de investimento, permite considerar a heterogeneidade nos coeficientes das variáveis independentes, o que evita o viés introduzido pela suposição de homogeneidade. Os resultados obtidos neste estudo mostraram uma maior sensibilidade do investimento ao fluxo de caixa para as firmas mais intensivas em capital, firmas de médio porte e firmas com alto grau tecnológico. Esses resultados se mantêm quando a variável fluxo de caixa é analisada em alta incerteza, ou seja, o investimento das firmas com alta intensidade de capital, médio porte e com alto grau tecnológico é mais sensível ao fluxo de caixa em condições de alta incerteza. / The aim of this research is to analyze the presence of financial constraints on investments decisions under uncertainty using data from 1223 Brazilian firms over the 1986 to 2006 period. Uncertainty is incorporated in the model of investment decisions considering the sales and cash flow variables, which are estimated by a stochastic equation of Brownian motion. In addition, the variable cash flow is grouped by high and low uncertainty according to annual rate of the Ibovespa index, the standard deviation of sales and cash flow. To consider the effects of financial constraints on firms investment decisions, this study used the degree of capital intensity, size, and the technological degree to classify firms. The investment equation parameters are estimated considering the mixed model. The mixed model, it has not yet been used in analysis of Brazilian firms, allows considering the heterogeneity on explanatory variables, which avoids the bias introduced by assumption of homogeneity. The results show greater sensitivity of investment to cash flow for more capital-intensive firms, medium and high-tech ones. These results keep when cash-flow variable is analyzed by high uncertainty, i.e, for these firms the investment is more sensitive to cash flow under higher uncertainty.

Considerando a importância dos fatores financeiros nas decisões de investimento e as restrições financeiras das firmas, os intermediários financeiros mostram-se como importantes provedores de fonte de recursos para a viabilização dos investimentos. Devido a esta ligação, um possível canal de transmissão no qual o setor financeiro afeta o crescimento e risco das empresas ocorre pela dependência de recursos financeiros externos, portanto, o risco e retorno das firmas devem ser afetados pelas dificuldades das entidades financeiras. Atentando a esta circunstância o objetivo deste estudo é de verificar na economia brasileira os efeitos do alastramento de risco do setor financeiro para a economia real nas decisões de investimentos das firmas, as quais perpassam por conjunturas de restrição financeira. Para atingir tal objetivo utiliza-se informações financeiras e retorno das ações das empresas de capital aberto no Brasil no período de 1997 a 2015. O alastramento do risco do retorno é estimado por um processo VAR-GARCH, e o contágio financeiro pelo indicador de co-excessos condicionais. Essas variáveis são inseridas em um modelo neoclássico acelerador de investimento modificado, para um grupo de firmas restritas e outro de não restritas, classificadas pelos índices KZ e WW. A estimação do modelo de investimento é realizada pelo GMM system e os resultados mostram que o nível do alastramento do risco do setor financeiro para as firmas impacta negativamente nas taxas de investimento das empresas restritas tanto pelo índice KZ, quanto pelo WW. O estudo amplia a literatura nacional utilizando um enfoque microeconômico do alastramento do risco e dos co-excessos condicionais e abordando a questão do alastramento do risco no modelo de investimento. / Considering the importance of financial factors and financial constraints in firm\'s investment decisions, financial sector show up as important source of funds providers to the viability of industry investments. Because of this connection, a possible transmission channel in which the financial intermediaries affect firm\'s growth and risk is from the dependence on external financial funds, so the risk and return of firms should be affected by the difficulties and vagaries of financial sector. In accordance to this circumstance this study aim\'s to verify the effects of the financial sector risk spillover and contagion to the real economy in constrained, and unconstrained, firms\' investment decisions. To achieve this goal, we use financial data and stock returns of publicly traded companies in Brazil from 1997 to 2015. The risk spillover is estimated by a VAR-GARCH process, and financial contagion by an index called conditional co-exceedance. These variables are included in a modified neoclassical accelerator model of investment, splitting the observations into groups of constrained and unconstrained firms, classified by KZ and WW indexes. The estimation of the investment model is performed by GMM system, and the results show that the level of financial sector risk spillover negatively impact investment rates of constrained companies, both by the KZ and WW segregations. This study contributes to the national literature using a microeconomic approach to the risk spillover and conditional co-exceedances addressing it to the investment model.

This study intends to examine the occurrence and effectiveness of minority block transactions in the presence of financial constraints in target firms. Minority transactions represent a strategic decision with specific characteristics if compared to the various forms of integration. In fact, several authors claim that minority block transactions may represent an alternative to alleviate financial constraints. However, there are still few studies that empirically address the relationship between financial constraints and the occurrence of such transactions. More specifically, there is no empirical evidence that states that minority transactions actually ease targets\' financial restrictions and foster corporate investment. Using a panel composed of approximately 12.000 deals, results show a positive relationship between the presence of financial constraints in target firms and the occurrence of minority transactions. Moreover, there is a significant difference between on the growth of investment and leverage indicators of target firms\' related to its counterfactuals after deal completion, indicating the effectiveness of minority transactions in alleviating such companies\' restrictions. / Este trabalho pretende examinar a ocorrência e a efetividade de transações minoritárias de participação na presença de restrições financeiras nas empresas alvo. Transações minoritárias em empresas representam uma decisão estratégica com características peculiares em relação aos diversos tipos de integração empresarial. De fato, diversos autores afirmam que transações de partes minoritárias de empresas podem representar uma alternativa para aliviar restrições financeiras. No entanto, ainda existem poucos estudos que analisam empiricamente a relação entre restrições financeiras e a ocorrência de tais transações. Mais especificamente, não há evidência empírica que afirme de fato que compras minoritárias de participações em empresas podem aliviar suas restrições financeiras ao investimento. Utilizando um painel composto de aproximadamente doze mil transações minoritárias feitas entre adquirentes americanos e alvos internacionais, os resultados demonstram uma relação positiva entre a presença de restrições financeiras ao investimento em empresas e a ocorrência de transações minoritárias. Adicionalmente, há uma diferença significativa entre os indicadores de crescimento e alavancagem das firmas alvo em relação aos seus contrafactuais após o período da transação, indicando a efetividade dos processos de transações minoritárias em relaxar as restrições financeiras das empresas.