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Essays on Capital Markets Open Access


Other title
business cycle
information uncertainty
finance and growth
financial dependence
creative destruction
post-earnings announcement drift
earnings momentum
financial development
Type of item
Degree grantor
University of Alberta
Author or creator
Liang, Claire Y.C.
Supervisor and department
Mehrotra, Vikas (Finance and Statistical Analysis)
Examining committee member and department
McLean, David (Finance and Statistical Analysis)
Morck, Randall (Finance and Statistical Analysis)
Young, Denise (Economics)
Mehrotra, Vikas (Finance and Statistical Analysis)
Yeung, Eric (Cornell University)
Faculty of Business
Date accepted
Graduation date
Doctor of Philosophy
Degree level
Capital markets play an important role in the modern economy. This thesis consists of two essays on capital markets. In the first essay (Chapter 1), I study the effect of systematic news on a prominent capital markets anomaly, post-earnings announcement drift (PEAD), and use the effect to examine competing explanations of PEAD. In the second essay (Chapter 2), I study the real effects of capital markets development. The abstracts from each of the essays are as follows: Chapter 1 Recent studies find that post-earnings announcement drift (PEAD) is related to the business cycle. Using quarterly data on U.S. public firms from 1973:Q1 to 2011:Q3, I find that PEAD is stronger when drift-period systematic news agrees with a firm’s prior earnings news; PEAD is weaker, insignificant, or even reversed when drift-period systematic news disagrees with a firm’s prior earnings news. The relation between systematic news and PEAD is consistent with the rational learning hypothesis, but cannot be explained by conventional behavioral models built on investor irrationality. The study suggests a channel linking PEAD to the business cycle. It provides empirical evidence that helps distinguish the rational learning hypothesis from conventional behavioral models, which previous studies attempting to use the rational learning theory to explain PEAD have found difficult. The findings indicate that anomalies need not imply investor irrationality. The effects of systematic shocks and information uncertainty on asset prices not captured by existing models offer a promising new direction for exploring PEAD as well as other anomalies. Chapter 2 U.S. financial development varies a good deal over the last half century, primarily increasing since the 1980s. We ask whether this variation had consequences for the real economy. Difference-in-difference tests reveal that increases in financial development have disproportionate effects on industries that depend more on external finance. Higher financial development forecasts externally dependent industries using more external finance, having higher turnover of leading businesses, greater variation in firm-growth rates, more new firms entering, more mature firms exiting, lower concentration, and at the aggregate level more innovation and faster growth. The mosaic of our evidence is consistent with a Schumpeterian framework linking the supply of finance to competition, innovation, and growth. Our findings suggest that the growth in finance had some real effects that are socially beneficial.
Permission is hereby granted to the University of Alberta Libraries to reproduce single copies of this thesis and to lend or sell such copies for private, scholarly or scientific research purposes only. Where the thesis is converted to, or otherwise made available in digital form, the University of Alberta will advise potential users of the thesis of these terms. The author reserves all other publication and other rights in association with the copyright in the thesis and, except as herein before provided, neither the thesis nor any substantial portion thereof may be printed or otherwise reproduced in any material form whatsoever without the author's prior written permission.
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