Corporate decision making and information

WEN CHEN

This dissertation consists of three studies that examine corporate behaviors in the presence of information. These behaviors include payout policy in terms of the timing of share repurchases, corporate governance decision concerning the recruitment of top executives, and operational decision on employment and corporate expenditures. In the first study, we theoretically and empirically explore the interaction between repurchases and insider trading as signaling devices about private information on firm valuation. We find that in the presence of asymmetric information, the validity of firm repurchase as an undervaluation signal is affected by the direction of management’s personal trading. In particular, share repurchases, when coupled with insider buying, furthers the signal of firm undervaluation; insider selling signals the opposite. Investors who fail to notice this interaction may suffer a loss by identifying undervalued securities through firm repurchase activities. The second study examines “glass ceiling” from the perspective of investors who take large positions based on their expectations of the ability of firm leaders. By examining stock prices which provide continuous measures of the market’s valuation of firms, we find more negative abnormal returns generated by an announcement of a female CEO, which implies investors’ lack of confidence in the leadership of women. In addition, we find supportive evidence that investors fail to adjust biased perceptions against women when actual performance is realized. The biased views of investors sort female leaders toward the unbiased minority; it thus implicitly explains the dominant representation of men in top management. The third study examines the effect of the employer mandate of Massachusetts Health Reform. The legislation required employers with 11 or more full-time equivalent employees to provide health insurance coverage to their workers. We find that the employer mandate had the desired effect of increasing insurance coverage for the state population. In addition, in response to this new regulation, we find no detectable contractions in labor market in aggregate. However, certain demographics— particularly low-skilled workers were impacted by showing a higher probability to work part-time and decreased working hours.

Corporate decision making and information

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