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Three Essays in Financial Economics

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File(s)
Tang_cornellgrad_0058F_14445.pdf (5.24 MB)
No Access Until
2026-09-03
Permanent Link(s)
https://doi.org/10.7298/yxtz-g519
https://hdl.handle.net/1813/116597
Collections
Cornell Theses and Dissertations
Author
Tang, Le
Abstract

This dissertation is comprised of three essays that cover topics in financial economics. In Chapter 1, "The Credit Effect of Government Spending", I investigate the role of federal procurement spending in shaping corporate borrowing capacity and investment decisions through the lens of cash flow-based borrowing. Using a structural model, I quantify that firms can borrow 23% more against procurement-based earnings than other market-based earnings, allowing for further borrowing and investment. This channel is particularly important for firms with low assets and high productivity. Losing procurement contracts has long-term consequences. Exploiting plausibly exogenous variations in public sector spending from the 2011 debt ceiling crisis, I find that reductions in procurement demand lead to a greater decline in investment and a higher cost of accessing external financing for government suppliers, compared to other companies that have similar characteristics ex-ante and have the same revenue trajectory. Overall, the results suggest that, in the presence of cash flow-based financing constraints, the effect of fiscal policy may be transmitted through a novel credit channel. In Chapter 2, "Venture Capital, Firm Creation and Destruction: Evidence from the Pension Protection Act of 2006", I examine the effects of increased access to venture capital (VC) on local entrepreneurship activities and business dynamism. I consider a regulatory change in the U.S. pension system that led to an influx of pension capital into the venture capital sector, and I exploit cross-sectional variation in the exposure to the regulatory change arising from differences in the public pension funding shortfalls across states. I find that expanded access to venture capital significantly increased local business formation following the regulatory change, with the effect being most pronounced in VC-dependent sectors. The increase in business formation is driven by startup entry rather than incumbent firm expansion. In Chapter 3, "Policy Uncertainty and Product Innovation", I empirically study how policy uncertainty affects corporate product innovation. Using granular product-level data on companies in the consumer goods sector, I find that firms reduce the rate of new product introduction and slow down their new product line expansion when faced with increased policy uncertainty. Moreover, I show that firms are more likely to introduce products with fewer novel features to the marketplace during times of heightened policy uncertainty. Additionally, I explore the geographic footprints of products. I find that, at the firm level, policy uncertainty is negatively associated with the geographic availability of products. Overall, this study examines innovation activities from the product dimension, revealing a negative relationship between policy uncertainty and product innovation.

Description
181 pages
Date Issued
2024-08
Committee Chair
Campello, Murillo
Committee Member
Lu, Yao
Murfin, Justin
Baron, Matthew
Degree Discipline
Management
Degree Name
Ph. D., Management
Degree Level
Doctor of Philosophy
Type
dissertation or thesis
Link(s) to Catalog Record
https://newcatalog.library.cornell.edu/catalog/16611766

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