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Essays on Empirical Corporate Finance
Title
Essays on Empirical Corporate Finance
Creator
Yang, Zihao
Date
2020
Description
This thesis consists of two essays on empirical corporate finance. The first essay examines the influence of corporate tax on corporate social...
Show moreThis thesis consists of two essays on empirical corporate finance. The first essay examines the influence of corporate tax on corporate social responsibility (CSR) investment. This essay takes advantage of the dynamic changes on state corporate taxes from 2003 to 2016 and explores the causal effects of the tax changes on firms’ CSR outcomes. Applying a difference-in-difference approach, I find that tax effects on CSR are asymmetric. Tax cuts lead to significant improvement of CSR ratings, especially in the concern issues. Tax hikes, on the other hand, lead to deterioration of CSR strength, but have no effect on CSR concerns. I also find that CSR investment from financial constrained firms is more sensitive to tax changes. The second essay studies the financial effect of suppliers’ initial public offering (IPO) on their customer companies. By analyzing matched supplier companies and their large customers, I find that customer companies lose value in both short-run and long-run time periods after suppliers’ IPO events. These customer companies also have higher risk compared to those whose suppliers do not go public. Moreover, I explore the channels of suppliers’ IPO effect on their customers. The results show that suppliers diversify customers and reduce trade credit after IPO. Finally, I find that the supply chain relationships are more likely to terminate after suppliers going public.
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Socially Responsible Investing and Style Investing
Title
Socially Responsible Investing and Style Investing
Creator
He, Di
Date
2020
Description
This study focuses on two popular investment strategies. The first one is a combination of socially responsible investing and factor investing...
Show moreThis study focuses on two popular investment strategies. The first one is a combination of socially responsible investing and factor investing (SRIF), it is therefore a comparison between factor investing portfolios and their corresponding ESG screened factor investing portfolios, aiming at indicating whether there is an opportunity costs or benefits of being responsible in factor investing. Opportunity cost is regarded if the ESG screened factor investing portfolios have lower raw return, Sharpe ratio, and risk-adjusted return than their respective factor investing portfolios. In addition to simply comparison, I also build an empirical SRI strategy, achieving real outperformance of SRI. For the second strategy, investing in R&D intensity (high technology) stocks results in significant positive alpha over 40 years. However, the alphas decrease significantly after the “Tech Bubble”, because investors nowadays prefer those technology firms who can produce true profits. I provide empirical evidence to investor sentiment, proving both risk bearing and investor sentiment play important roles in the positive association between R&D-intensive and excess return.In the first SRIF strategy, five widely-accepted factors in academic: value, size, profit, investment, and momentum are used to construct original single factor investing portfolio as benchmarks, which can naturally solve the benchmark bias, factor bias in previous literature at some extent. In addition to fulfill empirical industry’s generalities and constraints, this study also covers multi-factor framework and constructs different long-short positions for investment processing. Following considerations of ESG measurement (ESG_net and ESG_Industry, the latter one for calibration of industry bias), sample period (whole period and sub period), portfolio weighting methods (equally weighted and capitalization weighted), and after excluding undiversified portfolio, there are total 192 comparisons between factor investing portfolios and ESG screened factor investing portfolios for each measures of performance. Results suggest that most investors (80% - 90%) have to bear non-statistically significant opportunity costs if they want to be socially responsible in factor investing. In addition, the opportunity costs in sub period (2004-2017) is remarkably less in scale than those in whole period (1992-2017), indicating an obvious “time effect” that investors will have less opportunity costs recently with more and more ESG information is disclosed. For empirical consideration of industry, I build a double sorting factor portfolio on profit and value, and its ESG screened portfolio outperform the single factor portfolio.For the second research, R&D expense is a key component of investment. There is long history literature claim that there is a positive relationship between R&D and stock returns. There are two main explanations of the positive association, which are mispricing and risk bearing. This study separates whole sample into two periods: before “Tech Bubble” and after “Tech Bubble”, indicating that the mispricing is weaker after “Tech Bubble” than that in before “Tech Bubble”, while risk bearing is persistent. In addition, this study finds that the excess returns are relatively high for those highly subjective and difficult to arbitrage technology securities, which are small stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks before the “Tech Bubble”, but almost vanish after the “Tech Bubble”. Therefore, investor sentiment does exist. While for those true earning technology securities, their excess returns are persistent, indicating compensation of risk bearing.
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