This dissertation addresses issues in corporate finance. Part I examines the litigation
environment of a firm and its impact on financial policy. Chapter 1 discusses prior research,
including theory and empirical results, related to firm performance, financial policy, and
litigation. It provides the background to support the empirical analyses of Chapters 2 and
3. Chapter 2 examines the wealth effects of litigation events on the firms involved, as well
as on their industry peers. I find that litigation events have a strong negative effect on both
the firms sued, as well as their competitors. Chapter 3 examines whether managers use
financial policy strategically when facing an increased risk of litigation claims. I find that
greater litigation exposure leads firms to choose higher leverage. I show that this leverage
increase is brought on by an active decision to repurchase shares. These repurchases appear
to be financed with a combination of excess cash and short term debt as they coincide with a
significant decrease in cash holdings and an increase in short term liabilities. These firms also
increase their use of operating leases, which, due to their priority in bankruptcy, have similar
characteristics as secured debt. Finally, the effects seem to be stronger for firms with a higher probability of bankruptcy. Part II asks whether there is a disposition effect in corporate
investment decisions. Chapter 4 provides a summary of the existing literature related to the
disposition effect and discusses both theoretical and empirical findings. In Chapter 5, I utilize
the unique nature of Real Estate Investment Trusts (REITs) to test for the presence of the
disposition effect in corporate investments. The results show strong statistical evidence that
REIT managers tend to sell winners and hold losers, where winners and losers are defined
using changes in properties’ prices since they were acquired. In addition, I find evidence
that this behavior is consistent with the disposition effect. REIT managers are significantly
less likely to sell properties that have a loss relative to a reference point based on inflation
or historical average returns, controlling for the properties’ recent returns. / text
| Identifer | oai:union.ndltd.org:UTEXAS/oai:repositories.lib.utexas.edu:2152/ETD-UT-2010-08-1701 |
| Date | 09 November 2010 |
| Creators | Crane, Alan David |
| Source Sets | University of Texas |
| Language | English |
| Detected Language | English |
| Type | thesis |
| Format | application/pdf |
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