Three Eassys on Capital Markets
This dissertation is a combination of three papers on capital markets. The first chapter studies on the impact of cost of capital on corporate investment and financing decisions. Previous literature shows that the implied cost of capital (ICC) has a negative effect on investment, while the factor model-based estimates have positive effects on investment. Our paper documents that these alternative cost-of-equity proxies also have opposite effects on equity issuance. We show that the ICC has negative effects on investment and equity issuance by capturing the firm-specific discount rate news, whereas the factor model-based estimates have positive effects on these decisions by capturing the market-wide cash flow news. Thus, the opposite effects of the ICC and factor-model based estimates can be explained by their distinctive information contents. In the second chapter, I evaluate the economic consequences of advisory misconduct by estimating the effect of publicly disclosed regulatory actions of mutual fund advisors on fund flows. Based on a broad set of misconduct events from 2000-2013, I find a 5% reduction in fund flows to malfeasant advisors in one year following the misconduct. Further analysis using the 2001 SEC electronic filing mandate as a positive shock to misconduct transparency corroborates these results. In order to mitigate the negative impact on flows, mutual fund companies tend to raise marketing expenditures, reduce contractual incentives and relax investment restrictions in subsequent years. Moreover, advisory misconduct adversely affects advising relationships and advisor survival. My findings highlight the significant impact of misconduct on fund flows and advisory contracting in the mutual fund industry. In the last chapter, we evaluate the effectiveness of Interfund Lending Programs for both borrowing and lending funds in fund families. We find strong support for the positive effect for borrowing funds. Under extreme distress ILP-funds have 0.32% higher returns than non-ILP funds in the following week. Sub-sample analysis shows that the positive effect is mainly driven by equity and municipal funds, and the effect is more pronounced when funds hold illiquid assets, when external funding cost is high, and when fund families are more diversified in styles. Moreover, Interfund Lending Programs facilitate liquidity management and reduce external borrowing activities. But we find limited evidence concerning the effectiveness for lending funds. Taken together, our results suggest that Interfund Lending Programs play a crucial part as internal capital market in fund families.
Advisory Misconduct; Capital Markets; Cost of Capital; Liquidity Supply; Management; Economics; Finance
Ng, David T.
Hwang, Byoung-Hyoun; Yonker, Scott E.
Applied Economics and Management
Ph. D., Applied Economics and Management
Doctor of Philosophy
dissertation or thesis