Essays on Empirical Corporate Finance

Abstract

In this dissertation, I investigate important questions in the realm of empirical corporate finance. The research topics include with-in firm pay inequality and dividend policy (first chapter), the determinants and predictive power of SPAC shares redemption (second chapter), and the firm-level political risk and stock repurchases (third chapter). The first and third chapters are co-authored with Dr. Ali Akyol, and the second chapter is single authored. The first chapter examines CEO behavior in response to within-firm pay inequality. Using CEO-median employee pay ratio data mandated by the SEC, the study reveals that following the release of pay ratio disclosures, CEOs with higher pay ratios tend to issue higher dividend payments as a strategy to mitigate adverse reactions from the investors and market than those with lower pay ratios. The positive correlation between CEO pay ratio and dividend payouts is consistently observed on both yearly and quarterly basis. The relationship between CEO pay ratio and dividend payouts remains robust when taking into account various firm characteristics and external shocks such as the COVID-19 pandemic and overall market condition. Furthermore, we employ instrumental variable regression analysis, subsample analysis, alternative measures analysis, and omitted variables analysis to validate the findings. On the other hand, the results indicate that CEO pay ratio does not significantly impact stock repurchases, as the decision of stock repurchases is sensitive to exogenous shocks, and stock repurchases lead to potential shareholder base loss. In the second chapter, I address potential factors affecting investors' share redemption decisions in Special Purpose Acquisition Companies (SPACs). I show that investors demand information on SPACs from different sources, and several relevant factors are identified from the SPAC side, the target company side, and the merger deal and financial market side. I also find that the SPAC share redemption rate shows predictive power for post-merger operational performance. Furthermore, the redemption rate significantly predicts the post-merger stock performance for original SPAC shareholders but not for the new shareholders who purchase stock shares in the newly merged firm after the merger. In the third chapter, we use a novel measure of firm-level political risk developed by Hassan, Hollander, Van Lent, and Tahoun (2019) to explain stock repurchase activities in publicly listed U.S. firms. With our monthly open-market repurchase data, we find a positive and significant effect of firm-level political risk on open-market repurchases. The positive association also exists in the subcategories of political risk related to economics, environment, institutions, security, tax, and technology. We find that firms' ROA volatility and growth potential act as intermediary effects on the relationship between political risk and repurchases. Further, we conduct robustness checks including omitted variables, instrumental variable analysis, subsample tests, and propensity score matching. The results of robustness checks support our main hypothesis and are consistent with our primary findings.