ESSAYS ON FIRMS, INVESTORS, AND STOCK MARKETS

Abstract

My dissertation uses international evidence to provide fresh perspectives on the interaction of firms and the secondary market. Chapter 1 is an empirical study of the causal effect of an initial public offering (IPO) on a firm’s investments. The study focuses on a historical event: the 2012 Chinese IPO moratorium. This event addresses the endogeneity problem associated with IPOs. It independently sorted into two groups the Chinese applicant firms of 2012—those that went public as scheduled and those that were delayed for at least a year. I find that firms that went public on schedule made significantly more investment in fixed assets after their IPO compared to similar firms that faced a one-year delay. The increase in investment is on average 36.4% of the firms’ pre-IPO level—a pronounced amount that generates policy implications. Chapter 2 uses a unique dataset from 1999–2015 to show that the number of trading halts is a significant source of illiquidity in the market for Chinese A shares. The risk of trading halts is not predicted by the bid-ask spread but is predicted by end-of-day transactions cost measures, suggesting that the measures of transactions costs have more information than the bid-ask spread. The discretionary trading halts are associated with a robust “run up and reverse” pattern of cumulative abnormal return. On average they earn negative returns for investors who purchase the stocks right before the trading halts, but earn positive returns for existing investors who already hold the stocks for a longer period. Financially constrained firms and firms engaging in earnings manipulation create more trading halts and their trading halts have a larger impact on the price. Trading halts generally decrease for firms that split stock supporting the “catering” motive for halts. Chapter 3 examines whether sensation-seeking is an important determinant of trading volume by looking at cross-country evidence. This paper validates that sensation-seeking plays a significant role in explaining cross-country variation in excess trading volume. Internationally, market efficiency is not strong enough to drive sensation-seekers out of the market. Overconfidence and risk appetite do not take away the explanatory power of sensation-seeking.