Essays in empirical corporate finance : analyst and manager decisions

Abstract

This dissertation consists of three essays in empirical corporate finance. In the first chapter, I examine whether CEOs imprint anchoring on corporate financial decisions. I develop a measure of “anchoring CEO” based on insider selling near 52-week high, and find that firms managed by anchoring CEOs are more likely to issue SEOs when stock prices are approaching 52-week highs. The effect is stronger for firms with higher valuation uncertainty. Anchoring CEOs also tend to conduct accelerated SEOs and raise less capital through these offerings near 52-week high. Overall, the results provide evidence that anchoring CEOs behave consistently across personal and professional domains. In the second chapter, I investigate whether 52-week high stock prices serve as reference points for analyst recommendation revisions. I find that analysts are more likely to downgrade stocks when the prices approach the 52-week high levels. This anchoring effect is stronger for stocks with higher information asymmetry but moderated by analysts’ reputation, work experience, and educational background. I also show that a strategy that takes long positions in stocks approaching 52-week high generates positive returns, and a strategy that shorts stocks with recommendation downgrades is less profitable for the downgrades near 52-week high than for other downgrades. Moreover, the downgraded firms with prices near 52-week high subsequently experience less negative earnings forecast revisions, compared with other downgraded firms. Collectively, the results indicate that downgrades near 52-week high are partially attributable to anchoring heuristic and less informative. In the third chapter, I study the cash holdings of innovative firms across countries. Using 8,379 innovative firms from 23 non-U.S. countries over 1990-2012, I find that firms with higher innovation efficiency (IE) hoard more cash. This IE-cash relation is more pronounced for firms in countries with less developed financial markets, better institutions and infrastructures for innovation, and more intense competition. The relation is also stronger for firms that are in industries with higher dependence on external financing and more technology-intensive, and financially constrained. These firms increase cash holdings by saving from cash flows and paying out less. Overall, this international evidence is consistent with the precautionary motive of cash holdings for innovative firms.