Document Type


Date of Degree

Summer 2016

Degree Name

PhD (Doctor of Philosophy)

Degree In

Business Administration

First Advisor

Mauer, David C

First Committee Member

Lie, Erik

Second Committee Member

Garfinkel, Jon A

Third Committee Member

Vijh, Anand M

Fourth Committee Member

Yao, Tong


This thesis consists of three essays and studies debt structure, cash holdings, and CEO compensation in empirical corporate finance. The first essay is sole-authored and is titled “How Do Firms Choose Their Debt Types?” The second essay, “Corporate Cash Holdings and Industry Risk,” is a joint work with Jaewoo Kim and Erik Lie. The third essay is titled “Does Managerial Incentive Influence a Firm’s Borrowing Diversity?” and is sole-authored.

In the first essay, we empirically investigate the joint determinants of a firm’s debt types (i.e., bank debt, bonds-and-notes, capitalized leases, and convertible debt) using a simultaneous equation framework in which a firm’s choice of a debt source is endogenous to other choices of debt sources. We find that firms with high growth opportunities and few tangible assets are more likely to depend on bank debt, and that firms with high profitability tend to use more convertible debt. We further examine the interactions between debt choices within a firm. Our research suggests that among a firm’s debt components, bank debt has a complementary relation with bonds-and-notes, and that bank debt and convertible debt are substitutes. Finally, we examine the changes in composition of debt types across the market-to-book ratio and cash flow volatility quartiles. Our study shows that the proportion of firms using bank debt and convertible debt increases with firms’ high growth opportunities. The propensity of using capitalized leases and convertible debt increases as firms are financially constrained or have severe asymmetric information problems; meanwhile, the propensity of using bank debt decreases.

In the second essay, we conjecture that a firm’s sensitivity to industry shocks escalates its need to retain a cash buffer. Consistent with our conjecture, we find that a one standard deviation increase in a firm’s industry risk exposure increases cash holdings by eight percent. In fact, industry risk has a greater effect on corporate cash holdings than economy-wide and idiosyncratic risk. The effect of industry risk is more pronounced for firms in competitive industries, firms with high leverage, and firms that are financially constrained.

Lastly, in the third essay, we empirically investigate how the structure of managerial compensation and corresponding incentives affect firms’ borrowing diversity. We also explore which types of debt allow a CEO to have the flexibility to take more risks and provide more discretion in business decisions. We find that firms with higher CEO vega have lower borrowing diversity, and these firms increase the likelihood of convertible debt and capitalized leases issuances, relative to bank debt borrowing. Finally, after changes to the accounting standards (FAS 123R), we find that firms with higher CEO vega are more likely to issue capitalized leases and bonds-and-notes, but less likely to issue convertible debt. Our findings indicate that a CEO’s risk-taking incentives affect a firm’s debt structure and the adoption of FAS 123R has changed patterns of debt security choices.


xi, 168 pages


Includes bibliographical references (pages 159-168).


Copyright 2016 Jinsook Lee