Essays on Corporate Financing Decisions

S M Zahid

doi:10.7273/000005356

This dissertation explores firms’ asset structure from different dimensions and investigates their impact of corporate financing decisions. In the first chapter of the dissertation, my coauthor and I investigate the impact of redeployability of long-term assets on corporate cash holdings. We find that firms with redeployable assets hold significantly less cash. To address the endogeneity concerns, we implement propensity score matching and entropy balancing. Our results to robust to this matching and balancing analysis. To address causality, we exploit the Russian Crisis of 1998 and find evidence of a causal effect of asset redeployability on corporate cash holdings. We also investigate the underlying mechanisms driving the relationship between asset redeployability and cash holdings. First, we find evidence that redeployability positively affects an asset's potential to be great collateral for acquiring external financing. To support the external financing argument, we find that firms with more redeployable assets have greater access to credit line facilities. Second, we find that asset redeployabilty gives firms an edge to sell corporate assets in the secondary market. This effect is more pronounced during industry downturns. Collectively, the evidence points to an important interplay between the liquidity of the short-term portion of the balance sheet and the long-term portion of the balance sheet. In the second chapter, my co-author and I investigate the influence of intangible assets on corporate debt structure. We find that firms with intangible capital issue debt with shorter maturity and prefer unsecured debt over secure debt. To address the endogeneity concerns, we implement propensity score matching and entropy balancing. To find causal evidence, we implement an instrumental variable approach. We also investigate the underlying mechanisms through which intangible capital influence corporate debt structure. We find that agency conflict and information asymmetry as underlying mechanisms explaining the relationship between intangible capital and the maturity structure of corporate debt. We also find that information asymmetry and operating flexibility explain the relationship between intangible capital and unsecured debt. Overall, the evidence points to the impact of intangible capital in explaining the change in corporate debt structure in the last four decades.

Essays on Corporate Financing Decisions

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