Three Essays in Corporate Finance.

Abstract

The three essays in this dissertation examine issues related to corporate governance, investment, and financing. In the first essay, I analyze the consequences of CEO succession on board composition. I show that existing independent directors with no social ties to an incoming CEO are more likely to leave the board after the incoming CEO takes charge, and they will be replaced by new independent directors who are socially connected to the incoming CEO. The effect of CEO-director connections on independent director turnover is more pronounced when the succeeding CEO is hired into an under-performing or into a poorly governed firm, and thus is likely to have greater bargaining power over the board. Strong external governance reduces a CEO’s influence on director selection. Finally, an increase in board social dependence is detrimental to firm value when the firm’s need for board advising is low. In the second essay, we study the overseas programs offered by U.S. universities. We find that real GDP per capita and tertiary school age population are two key determinants of the location choice. Asia and the Middle East are popular destinations for U.S. overseas programs, driven by market size and oil money, respectively. U.S. universities offer lower tuition discounts in countries with higher real GDP per capita. We conclude that U.S. universities behave like multinational corporations when they make investments overseas. In the third essay, we examine whether a firm’s previous financial restatement affects its costs of raising seasoned equity. We find that firms that restate earnings due to accounting irregularities subsequently pay higher underwriting fees. The effect of restatements on underwriting fees is more pronounced for larger offerings and offerings in the first few years after restatements, and lessens as restatement firms make corporate governance improvements. We also find that restatement firms employ more lead underwriters, form larger syndicates, and are less likely to use the faster and cheaper accelerated underwriting method than the traditional book building process. Our evidence suggests that financial misrepresentation increases a firm’s contracting costs when accessing the equity market, but subsequent governance improvements can mitigate this adverse consequence.