Essays on empirical corporate finance

Abstract

This dissertation consists of three essays on empirical corporate finance. In the first chapter, we identify culture as an important factor affecting corporate cash holdings by using China and its national culture, Confucianism, as the setting. We find that firms located in regions with stronger Confucian culture hold persistently higher levels of cash. We employ an instrumental variable to draw causal inference. The culture effect is stronger for more financially-constrained and riskier firms, suggesting precautionary motives as the underlying mechanism. We find that the culture effect remains intact after controlling for corporate governance heterogeneity, which rules out the agency motives. Lastly, firms' operating performance indicates that high cash holdings is an efficient outcome.

In the second chapter, we show that common institutional ownership (CIO) along the supply chain mitigates hold-up problems faced by supplier-customer relationships resulting from incomplete contracts. Suppliers make more relationship-specific investments towards their customers that share common institutional investors. Such effect is stronger as the CIO network between a supplier and customer pair becomes wider and deeper. We establish causality by exploiting exogenous shocks to CIO using a broad sample of mergers between financial institutions and further find the CIO effects on suppliers' investment specificity are stronger for those who ex-ante face severer hold-up concerns. Our work sheds light on the hold-up concerns mitigation effect of CIO on firms’ decision to make relationship-specific investments along the supply chain.

In the third chapter, we analyze the consequences of shuttering four Antitrust Division field offices by the U.S. Department of Justice in 2013 on corporate market power. Contrary to most criticism, we find little evidence that the closure of field offices cripples local antitrust law enforcement. We document that firms in the affected areas lost some market power. The decrease of market power is mainly driven by firms in the top quartile of the markups distribution. More intense market competition within the areas previously supervised by the closed field offices is a channel leading to the decrease of market power. Our work provides novel empirical evidence on the effectiveness of the hub-and-spoke regulation in the context of antitrust enforcement