Date of Degree
PhD (Doctor of Philosophy)
This thesis studies a range of topics in empirical corporate finance, and consists of three essays. The first essay is sole-authored and is titled ‘The Value of Social Networks during Periods of Distress.' The second essay ‘The Role of Investment Banker Directors in M &A: Can Experts Help?' is a joint work with Feng Jiang, Erik Lie, and Ke Yang. The third essay is titled ‘Acquisitions of Financially Distressed Firms: An Empirical Analysis' and is coauthored with Feng Jiang.
In the first essay, I examine the impact of social networks during (i) a financial crisis, (ii) industry downturns, and (iii) periods when firms are in financial distress. I find that socially well-connected firms exhibit better performance during the financial crisis of 2007-2009. Well-connected firms have better access to debt financing during the crisis, and this is especially true among financially constrained firms. During industry downturns, firms with more social connections also perform better. When firms become severely financially distressed, I find that personal connections to lenders reduce the probability of filing for bankruptcy and increase the likelihood of getting Debtor-in-Possession financing if they nevertheless have to file. Overall, the results suggest that social networks benefit firms in times of distress.
In the second essay, we examine how directors with investment banking experience affect firms' acquisition behavior. We find that firms have a higher probability of acquisition when an investment banker is a director. Furthermore, acquirers with investment banker directors on the board have significantly higher announcement returns, especially if the deal is relatively large and the bankers' experience and/or network is current. We also find evidence that investment banker directors help reduce the takeover premium and advisory fees paid to outside consultants. Finally, the presence of investment banker directors is positively related to long-run operating and stock performance.
Lastly, in the third essay, we study acquisitions of distressed targets. We find distressed acquisitions are usually associated with debt restructuring of the target debt, and the deals can be implemented with or without the aid of the bankruptcy court. We find target stakeholders generally prefer to complete the acquisition without court help, unless the hold-out problem that resides in debt structures would jeopardize a deal outside of Chapter 11. Firms that choose to be acquired within Chapter 11 are found to have more debt contracts outstanding and more public debt. We also find that target CEOs are more likely to retain their jobs following non-bankruptcy acquisitions or pre-negotiated acquisitions than in post-negotiated acquisitions, consistent with our conjecture that management benefits personally from arranging a sale as a resolution to the financial distress of the firm.
Copyright 2012 Qianqian Huang
Huang, Qianqian. "Essays in empirical corporate finance: social networks, M&A, and financial distress." dissertation, University of Iowa, 2012.