Essays on market liquidity, agency costs and takeovers.

摘要

The first essay investigates dynamic interaction between financial liquidity and market liquidity when investors liquidate their portfolios due to margin calls, increased risk aversion, and information asymmetry in an economic crisis. I use firm level data to examine changes in the stock market liquidity of exposed and unexposed firms to the Asian crisis. Results indicate a significant increase in the crisis period bid-ask spreads and decrease in quoted depth for both exposed and unexposed firms, particularly the more liquid or less risky firms during the pre-crisis period. The drop in crisis period market liquidity seems to be attributable to an increase in margin-induced sales, risk aversion, and both the asymmetric information and fixed costs of trading. These findings suggest that the widely documented contagion in stock returns is associated with a contagion in market liquidity during the Asian crisis. The second essay investigates the issues of excessive expenses and inefficient asset utilization by the managers of acquiring firms and takeover targets. There is evidence that targets in general have higher operating expenses. Also, for targets with fewer investment opportunities, excess funds and weak alternative control mechanisms like insider holdings, equity-based compensation and external monitoring by blockholders and debt holders, the pre-acquisition asset turnover is significantly lower. Further, abnormal returns are higher for targets with potentially severe agency problems with few investment opportunities, excess funds and low internal and external control mechanism. However, there is little evidence of poor operating performance by bidders with high agency exposure. The final essay analyzes whether the managers of rivals act to mitigate their agency exposure in response to a takeover attempt in the industry. Results indicate that rival firms in general decrease free cash flows, reduce capital expenditures and increase leverage. Evidence suggests that rival firms with few investment opportunities and high cash or high free cash flows reduce cash levels and free cash flows subsequent to a control threat in their industry. There is weak evidence that the announcement period abnormal returns are higher for rivals with fewer investment opportunities and high cash levels. These findings support the argument that takeovers act as an effective external control mechanism for managers and that they have industry wide effects.