Three essays in empirical corporate finance

  • Author / Creator
    Maung, Min T
  • This thesis presents three essays on credit ratings of regulated utilities, dividend signaling, and asymmetric information and security issuances and repurchases. Chapter 2 investigates the practices of credit rating agencies by using the regulated utility industry as a natural testing ground. Following deregulation and the Enron scandal, the general opinion among industry professionals is that utilities are being punished by rating agencies. Contrary to this popular belief, we find that the utility credit ratings are significantly higher compared to those of other firms, and this significance is more pronounced in the post-deregulation period. Although rating agencies often cite regulatory reasons for placing utilities on negative credit watches, these firms’ ratings are rarely downgraded after being placed on negative watches. Chapter 3 provides a rational explanation for the disappearing dividend trend. Dividends serve as signaling device and, under models of dividend signaling under information asymmetry, cost of signaling increases with volatility of firms’ cash flows. Declining propensities to pay dividends imply that (1) information asymmetries have become lower and/or (2) cost of signaling has increased. We find evidence consistent with both. In particular, firms with higher information asymmetries and lower stock price informativeness are more likely to pay dividends: the increasing stock price informativeness has made dividend signaling less valuable, and a significant portion of disappearing dividend trend could be explained by rising risk and increasing stock price informativeness. Chapter 4 investigates the motivations for debt and equity issuances and repurchases in hot and cold markets. I find that firms issue equity in hot markets to reduce adverse selection costs associated with asymmetric information. In particular, firms issuing equity in hot markets possess high asymmetric information while firms issuing equity in cold markets possess less severe asymmetric information. I also find that credit ratings and market-to-book ratios could explain why firms might repurchase equity or issue debt in hot markets rather than issue equity: firms with high credit ratings and low market-to-book ratios are more likely to issue debt even in hot equity markets, and firms with low market-to-book ratios are more likely to repurchase equity in any market.

  • Subjects / Keywords
  • Graduation date
  • Type of Item
  • Degree
    Doctor of Philosophy
  • DOI
  • License
    This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for non-commercial purposes. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.
  • Language
  • Institution
    University of Alberta
  • Degree level
  • Department
    • Faculty of Business
  • Supervisor / co-supervisor and their department(s)
    • Mehrotra, Vikas (Finance and Management Science)
  • Examining committee members and their departments
    • Marosi, Andras (Finance and Management Science)
    • Hasan, Iftekhar (Finance and Accounting)
    • Young, Denise (Economics)
    • Scholnick, Barry (Marketing, Business Economics and Law)
    • McLean, David (Finance and Management Science)