Essays in corporate finance
Year of Dissertation:
ABSTRACT ESSAYS IN CORPORATE FINANCE by Milos Vulanovic Adviser: Professor Armen Hovakimian This dissertation consists of two essays on corporate finance. In the first essay we test the pecking order theory by examining how firms finance maturing long-term debt. This allows us to accomplish three goals: resolve the issues of debt capacity and the endogeneity of financing deficit; examine the role of internal financing; and generate evidence regarding the order in which different sources of financing are used. We determine that firms use internal funds before they issue new debt to refinance maturing long-term debt. Firms with more cash on hand are less likely to issue new debt to refinance. On average, each marginal dollar of maturing long-term debt is fully financed with the issuance of new debt. In the second essay, we study characteristics of Specified Purpose Acquisition Companies (SPACs) and examine the performance of their securities over time. We find that SPACs represent a fairly unique way to raise capital, The incentives of their founders, underwriters, and investors are interdependent and successful business combinations generally result in significant returns to founders. We also show that different SPAC securities generate different reactions in response to the announcement news regarding their corporate status. While holders of all three securities realize abnormal returns on the announcement day, the strongest reaction is observed among the investors holding warrants, while common stock holders tend to react very mildly.
Three Essays in Health Economics
Year of Dissertation:
This dissertation consists of three essays. In my first essay, I examine the relationship of the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC program) to breastfeeding. Although WIC promotes breastfeeding among its participants through education, counseling, and the provision of enhanced food packages to breastfeeding women, the program has been criticized for discouraging breastfeeding by providing free infant formula. In order to estimate the extent to which participation in WIC discourages breastfeeding, I employ a methodology that disentangles selection bias associated with WIC participation from the incentives associated with the provision of free infant formula. Findings suggest that postpartum entrants are less likely to breastfed for at least 6 months and have shorter breastfeeding durations than non-participants, and the effects are significantly larger among twin mothers than among singleton mothers. In my second essay, I investigate the association between WIC participation and infant health. How effective WIC is at improving birth outcomes is under debate. Identifying treatment effect is challenged by selection bias and gestational age bias. We use twins to minimize selection bias associated with WIC participation because twin pregnancy increases the probability of adverse birth outcomes significantly but is unlikely related to other risky behaviors. Our focus is on measures of fetal growth as outcomes amenable to nutritional supplementation. Our findings from two national datasets, PNSS and ECLS-B, suggest that prenatal WIC participation has very limited effect on fetal growth. We do not find evidence of causal effect between WIC and better birth outcomes, especially among twin births. In my third essay, I turn my interest to a different research question, the association between retirement and alcohol consumption. Retirement is life transition whose significance may provoke lifestyle and health behavioral alterations such as alcohol consumption. We examine the effect of retirement on subsequent period alcohol consumption within a two period follow up. We use seven waves of the data from Health and Retirement Study (HRS) and found retirement lead to consume 1.3 more alcoholic drinks per day within men. No effect has been found within retired women.
Essays on the Determinants and Consequences of Physical Activity
Year of Dissertation:
The first essay focuses on the economic determinants of physical activity. Physical activity can be decomposed by intensity and duration. The intensity of physical activity is defined by total energy consumed on all physical activities divided by total hours. The intensity of an activity is measured by its metabolic equivalent (MET) value per hour. One MET is defined as the energy expended to lie or sit quietly. One novel aspect of the study is an investigation of the hypothesis that, because their time is more valuable, higher wage individuals may choose to exercise more intensively but for shorter durations. That hypothesis and others are explored in the context of fully specified demand functions for the duration and intensity of activities performed in the market and nonmarket sectors. The instrumental variable method is adopted to estimate the demand functions in which the endogenous variable leisure physical activity is included. Econometric issues related to omitted variable bias and selection bias are addressed as part of the empirical investigation. The second essay investigates to what extent physical activity influences health status. To study the heterogeneous effects of physical activity on dichotomous health outcome for three groups of people, the analyses of three stratifications are conducted for education, occupation, and physical activity intensity. Probit (ordered probit) models are utilized to address the research question. I find that for less educated or white collar workers, a rise in average physical intensity increases the probability of reporting very good or excellent health, while longer time spent on physical activity may benefit health for highly educated workers.
Credit Risk Pricing in Single Name Corporate CDS
Year of Dissertation:
The paper examines the determinants of the dynamics and term structure of credit default swap (CDS) spreads. I focus on roles of the interest rate risk and default risk. I extract interest rate factors from libor-swap curve, based on affine models. With a large data set, I test a three-factor CDS spread term structure model for 100 companies, using exact matching technique. The factors consist of two interest rate factors and one default risk factor. The estimation shows intricate interaction between interest rate factor and credit risk factor in determining the default process. I find that positive shock of the first interest rate factor will increase subsequent default risk factor, while positive shock on the second interest rate factor will decrease the subsequent default risk factor. In terms of direct effect of interest rate factors on the default process, positive shock on the first interest rate factor will decrease the default arrival rate at the moment, while positive shock on the second interest rate factor will increase the default arrival rate at the moment. Most of the effects of the shocks to interest rate factors will be sent to the default process indirectly through their impact on the subsequent move of the credit risk factor. CDS spreads of high credit rating companies are less responsive to the shocks on default risk than those of low credit rating companies. The work enhances our understanding of the process which underlies the CDS spreads movement and regimes. Such knowledge is essential for CDS pricing, risk measurement and management, hedging the related risk.
Essays in Unauthorized Immigration and Migration
Year of Dissertation:
This dissertation consists of three essays. The first essay develops a new methodology defined as the microdata-based methodology to identify unauthorized immigrants in the US. This identification is based on a discrete choice model on observed authorized and unauthorized immigrant data in 1986 with adjustments for time dynamics between 1986 and 2010 and for calibration in new data. This method produces an algorithm to identify unauthorized immigrants in the American Community Survey (ACS) 2010, and estimates that there were 7,700,869 adult unauthorized immigrants in the US on January 1, 2011. The essay includes detailed descriptive analyses of unauthorized immigrants and their children. In the second essay, I evaluate the impact of parents' legal status on the high school drop out probability of 16-18 year old children. The analysis uses data from the ACS 2010, and the methodology is a linear probability model. The study finds that when controlling for other covariates, a child of unauthorized immigrants has a lower drop out probability than a similar child of authorized immigrant parents, and among unauthorized immigrant parents, a non-citizen child has a higher drop out probability than a similar native-born child. In mixed families, among unauthorized immigrant mothers, a non-citizen child has a higher drop out probability than an otherwise similar native-born child, and children with the parent combination of highly unauthorized and highly legal immigrants have a higher high school drop out probability than those with highly unauthorized and unsure legal immigrant parents. In the third essay, I estimate a multinomial logit model to analyze the contextual determinants of labor migration in Sri Lanka, using data from the Consumer Finance and Socio Economic Survey 2003/4 of the Central Bank of Sri Lanka. The study finds higher internal migration probabilities for residents of rural areas, districts with a lower degree of structural transformation, and districts with a larger share of population in 19-34 years. Internal migration probabilities are lower for residents of districts with large labor forces.
Monetary Policy Shocks and Their Effects on Business Borrowings, Aggregate Output, and Prices
Year of Dissertation:
Developed from previous financial acceleration research, this thesis employs two VAR (vector-auto regression) systems to measure monetary policy shocks and their effects. The first uses the conventional Cholesky method and the second uses the methods developed by Bernanke and Blinder (1992) and Bernanke and Mihov (BM 1998). I use the federal funds rate and as the two monetary policy instruments in the VAR systems. With the Cholesky method, net financial borrowings rise (fall) for about one year after contractionary (easy) monetary policy shocks. This is consistent with what has been found by Christiano, Eichenbaum, and Evans (CEE 1996). The responses of corporate sector appear to explain the entire business sector, with no significant results found from the impulse responses of the other two sectors (noncorporate and farm). With the BM model, easing policy shocks lead to an initial fluctuation within the first half of year and the prolonged decrease in borrowings after half of year. The responses of borrowings in the BM model demonstrate different amplitudes and patterns from the Cholesky method following the policy shocks, this is from the structural shocks are defined differently in these two VARs. However, the decreases (rise) in borrowings after the easy (tight) monetary shocks are the same. In both systems, there is a significant expansion of real GDP following monetary easing. The price puzzle, that price levels are positively related to monetary tightening, does not appear in the plots of impulse response functions with the Cholesky method but they appear in some versions of the BM model.
ESSAYS ON THE IMPACT OF LEGALIZED ABORTION AND THE PILL ON CHILDBEARING BEHAVIOR AND BIRTH OUTCOMES
Year of Dissertation:
This dissertation is composed with two essays on reproductive behavior and related health outcomes. Recent studies on the "power of the Pill" have not adequately accounted for the role of abortion in the years between 1970 and 1973. In the first essay, I use rediscovered data on abortions performed in New York State in 1971 and 1972 by age, race and state of residence to demonstrate the remarkable impact of legal abortion services in New York on the fertility rates of young women as far away as Montana prior to Roe v. Wade. My results strongly suggest that laws enhancing access to legalized abortion more than the Pill caused birth rates of young women to fall in the early 1970s. In the second essay, I explore the hypothesis that abortion circumstances faced by women of childbearing age affect the subsequent fertility behavior of their daughters when they reach the ages of 15 through 24. Total and out-of-wedlock birth rate among teenagers and young women in the U.S. declined remarkably in early 1990s. Previous studies suggested that the legalization of abortion in the 1970s might contribute to this decline. I examine the impact of exposure to legalized abortion in utero on women's childbearing behavior using extended abortion data and new empirical design. The results suggest legalized abortion between 1970 and 1979, as a supply shock, reduces birth rate among teenagers born in this period by 5-10% and reduces birth rate among young women born in this period by 3-8%, but it has nearly no impact on women's marital status when they give birth. In the post legalizing period, 1980-1987, abortion exposure in utero is positively associated with teen birth rate. It implies abortion legalization may initialize the drop of early childbearing in 1990s, but it does not count for the continuous decline of teen fertility after 1994. I also show that the children of teenage girls and young women who give births in the 1990s are less likely to have health conditions such as low birth weight, pre-mature birth or abnormal birth if the mothers were born in year and state in which historical abortion ratio was high.
Essays on Empirical Asset Pricing
Year of Dissertation:
K. Ozgur Demirtas
ESSAYS ON EMPIRICAL ASSET PRICING by Duygu Zirek Advisor: Professor K. Ozgur Demirtas Essay 1: This paper examines the time-series predictability of aggregate stock returns in 20 emerging markets. In contrast to the aggregate-level findings in US, earnings yield forecasts the time-series of aggregate stock returns in emerging markets. We consider aggregate earnings not as normalizing variables for stock price but as predictive variables in their own right. Aggregate earnings themselves covary with the market returns, hence it is not just the mean reversion of stock prices that is responsible for the forecasting power of earnings yield. These results are robust across different estimation methods and after controlling for small sample bias and macroeconomic variables. We argue that due to high levels of fundamentals' co-movement in emerging markets, the information content of firm-level earnings (unsystematic earnings) about future cash flows is not fully diversified away at the market level. Relevant literature shows that firm-level earnings are positively correlated with expected returns in US and this positive relationship remains significant only at the less diversified industry- level but disappears at the highly diversified US market level. Emerging markets are significantly less diversified compared to US. This explains the strong and robust predictive power of aggregate earnings in emerging markets. Essay 2: This paper examines the forecasting power of earnings yield and aggregate normalized earnings in world markets. 48 countries have been ranked according to the stock price synchronicity and diversification measures, obtained by utilizing daily firm-level data for each country. There is a statistically significant relationship between aggregate earnings and one quarter ahead expected stock returns for more synchronous and less diversified countries as opposed to less synchronous and more diversified countries. We argue that due to high levels of fundamentals' co-movement in highly synchronous and less diversified markets, the information content of firm-level earnings (unsystematic earnings) about future cash flows is not fully diversified away at the aggregate level. Our results remain robust after controlling for macro variables, such as consumer price index and discount rates.