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Using a sample of 45,283 firm year observations between 1993–2012, I examine the influence of different types of diversification and M&A accounting on firm value. I find that there are different explanations for earlier variations among documented discounts. I find different value effects for geographical and industrial diversification. These effects vary over time, with decreasing discounts for geographical diversification. Furthermore, I find different value effects of M&A accounting between industries. Controlling for firm fixed effects leads to insignificant results for most regressions, which indicates that underlying firm characteristics play an important role in the determination of the discount. Together, these findings explain earlier documented differences in the literature on the diversification discount.

This paper investigates the influence of hedging on firm value and stock return exposures in U.S. oil and gas industry from 1998 to 2004. Previous empirical results show that the relationship between firm value and corporate hedging activities is mixed. We find that the trend and volatility of oil and gas prices play important roles in the issue. Our results indicate that corporate exposures to oil and gas prices are asymmetric. We also find that gas reserve hedging has significant impacts on firm value when volatility of gas price is high. In conclusion, our results show that corporate hedging policies may add firm values in some special situations.

This paper examines the relative valuation of alternative methods of tax avoidance. Prior studies find that firm value is positively associated with overall measures of tax avoidance; I extend this research by providing evidence that investors distinguish between methods of tax reduction in their valuation of tax avoidance. The impact of tax avoidance on firm value is a function of tax risk, permanence of tax savings, tax planning costs, implicit taxes and contrasts in disclosures of tax reduction in the financial statements. My empirical results suggest that tax avoidance resulting from stock option tax benefits is positively associated with firm value, accelerated depreciation is not associated with firm value and deferral of residual tax on foreign earnings is negatively associated with firm value. Prior studies that find the positive association between firm value and tax avoidance is attenuated in poorly governed firms suggest the discount results from investor concern of managerial opportunism. Self-serving managers conceal diversion of tax savings from investors under the pretext that aggressive tax positions must be hidden from tax authorities in the financial statements. Under this theory transparent tax reduction methods that are clearly supported by the law should not be discounted by investors of poorly governed firms. However, I find that tax avoidance resulting from transparent stock option tax deductions is discounted in poorly governed firms, while tax avoidance derived from opaque deferral of the residual tax on foreign earnings is not, inconsistent with investors believing that managers are exploiting the compromised information environment associated with complex tax transactions. / Ph. D.

Corporations are subject to agency problems resulting from the separation of ownership and control. When the managers and shareholders¡¦ interests are not consistent, managers will not care whether capital structure is stable, and furthermore will not mind if the project would improve firm value or not. The only thing managers concern about is to maximize their own benefit. Previous work only discusses the relation between firm value and capital structure, or the connection between agency problems and firm value. However, capital structure, agency problems and firm value are multi-connected. When managers adjust firm¡¦s capital structure, firm value changes and agency costs decreases. This research examines the relation among firm value, capital structure, and agency problems of Taiwan listed companies from 1991 to 2003, excluding banks, securities, and insurance company. We address the potentially endogenous relation among these variables by estimating a three-stage least squares regression model. The empirical results show that the higher the debt ratio, the lower the firm value, and the higher the agency costs, the lower the firm value. Nevertheless, raising debt can mitigate the effect of agency problems on firm value. The higher firm value implies the better asset utilization. However, after firms¡¦ gaining profit, managers might abuse discretionary expenses, such as luxurious office, cars, and upper salaries leading to serious agency costs. In the industry aspect, debt ratio of electronic industry hurts firm value. But in the non-electronic industry, debt can mitigate the effect of agency problems, especially for firms with low tangible asset ratio, because many companies in Taiwan are facing underinvestment. Raising debt will force firms to select the best portfolio and then increase the firm value.

Tax avoidance that reduces transfers from shareholders to the government is traditionally viewed as value enhancing to shareholders. The agency perspective of tax avoidance, however, suggests that opportunistic managers may exploit the obfuscatory nature of tax avoidance to mask rent extraction. To shed light on these conflicting views, I use a self-constructed opacity index and multiple measures of tax avoidance to examine how corporate transparency relates to tax avoidance. I find that more transparent firms, which potentially have less severe agency problems, avoid more tax relative to their opaque counterparts. This result suggests that in a large section of the economy, tax avoidance is mainly engaged in by managers to enhance shareholder wealth. Further, I find that investors place a value premium on tax avoidance, but the price premium decreases with corporate opacity. This is consistent with the notion that corporate transparency facilitates the monitoring of managerial actions and thus alleviates outside investors’ concern with the hidden agency costs associated with tax avoidance. / text

<p>I examine the long-term valuation consequence of over-investment in mergers and acquisitions (M&As) on acquiring firms through the "anticipation effect," in which forward-looking prices embed investors' expectations about the profitability of firms' potential future acquisitions. Using a sample of 1,451 firms with past acquisition activities, I find that their market valuations depend on both the profitability of their past acquisitions and their current free cash flow. Specifically, among firms with positive free cash flow, those with the worse history of value-destroying acquisitions experience lower market valuations. Among firms with negative free cash flow, the history of value-destroying acquisitions is not systematically associated with firm value. In addition, a significant portion of the discount is from lowered valuation of firms' cash holdings. These findings are consistent with investors forming expectations about the profitability of future possible acquisitions based on the realized performance outcomes of firms' past acquisitions and value these firms accordingly based on the likelihood of engaging in future acquisitions. They also provide empirical support for using observed market prices to proxy for investors' expectations about firms' future investment opportunities.</p> / Dissertation

<p>Previous studies have identified that the use of currency derivatives in order to minimize the risk involved with foreign trade can also increase a firm’s value. Evidence of this can be found in a paper such as Allayannis and Weston (2001) “Use of Foreign Derivatives and Firm Market Value”, which showed that companies in the U.S. that uses these currency derivatives has a higher firm value than companies that do not use them. However, there have not been any studies concerning the Swedish market. This is why the Swedish market is selected for this thesis but also since the Swedish market is a more open market than the U.S. market for instance. The more open, the more volatile is the exchange rate, which one could see as a reason to why Swedish companies should hedge even more. The purpose of this thesis is to analyze the Swedish market and to find out if there is a relation between the firm value and hedging, analyzed with help of Tobin’s Q that gives us a measurement of the firm’s underlying value.</p><p>The analysis is done on the 50 largest companies in Sweden, although some of the companies are ranked lower in the category total asset but since not all of the 50 largest companies met the requirements, the selection had to go further down the list. The data is received from the companies annual reports (2005), this to receive the latest data. The companies are analyzed with help of Tobin’s Q and also EBIT (Earnings Before Interest and Tax), this to get a measurement of how the market value of the companies was towards each others with pr without hedging.</p><p>The result is presented in the analyze and shows that there is no relation between firm value and hedging, at least not in this research and with this selection of companies in the Swedish market. This result contradicts the findings in the paper made on the U.S. market.</p>

Access to adequate liquidity to finance future investments is an essential element of financial management. The two main questions that this dissertation attempts to answer are (i) what is the net valuation effect of LoC? and (ii) if LoC create value, what are the sources of this value? To answer these questions, I constructed a sample of 85,232 firm-years spanning from 1993 to 2016, with credit line data obtained from Capital IQ and Bloomberg. I investigated the valuation effects of LoC with a methodology extensively used in the analysis of the valuation implications of cash. I used this methodology because cash and LoC are two alternatives to manage liquidity and estimated the changes in shareholders' value associated with changes in existing LoC undrawn balances and on new LoC agreements. The results from this analysis demonstrates a positive association between increases in LoC capacity and shareholder's value. These findings are also obtained in univariate and event study analyses. The results also suggest that LoC create more value for firms that are rich in cash, indicating the LoC and cash are complementary liquidity management tools. I then focused on the sources of the value created by credit lines. I examined whether information asymmetry plays a role in LoC valuation by analyzing the association between firm value and LoC for firms with high- and low-information asymmetric. I also studied whether LoCs reduce agency problems by comparing firm value and LoC capacity in both poorly and well-governed firms. Furthermore, I examined whether firms benefit from an increase in financial flexibility provided by access to credit lines. I found results consistent with LoC being more valuable for firms with higher levels of informational asymmetries. The analysis also suggests that LoCs with longer maturity create more value than those with shorter maturity. Surprisingly, I find limited support for the hypothesis that shareholders place a higher value on LoCs in increasing financial flexibility. Moreover, I found no support for the role of credit lines in reducing agency problems.