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Three Essays in Corporate Finance

Fan, Xin (2021) Three Essays in Corporate Finance. Doctoral Dissertation, University of Pittsburgh. (Unpublished)

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Abstract

This dissertation consists of three essays on corporate finance. In the first essay, I use two important rulings of Marblegate Asset Management v. Education Management Corporation (EMC) to study the effect of distressed public debt restructuring methods on investment. The 2014 ruling limited the ability of firms to use coercive bond exchange offers to facilitate out-of-court restructurings, thereby increasing the likelihood that public debt would be restructured under Chapter 11. The 2017 ruling reversed the 2014 ruling. Following the 2014 ruling, affected distressed firms significantly reduced investment and improved investment efficiency relative to non-distressed firms. Affected firms responded in an opposite manner to the 2017 ruling. I conclude that the method of public debt restructuring in distressed firms affects ex ante investment policies. In the second essay, I utilize a legal ruling that represents an exogenous shock to bankruptcy-related control threats from secured creditors to study the effect of takeover threats from secured creditors on ex ante debt financing policies. Following a positive shock to such threats, firms with high default probabilities (particularly those with high secured debt ratios) significantly decrease leverage. This effect is larger for firms that have a lower probability of being acquired in a hostile takeover and those with higher pay-performance sensitivity of CEO compensation. I conclude that bankruptcy-related takeover threats from creditors have a meaningful impact on capital structure choice, and that this impact is opposite that of equity-based takeover threats. In the third essay, I study the financing effect of prepaid gift cards. Prepaid gift cards represent short-term liabilities because retailers receive up-front cash at the sale of prepaid cards and book revenue at redemption. I show that these liabilities are economically important; the average unredeemed prepaid card balance is 7.0% of total liabilities and 3.4% of total assets. Moreover, using a unique natural experiment, I show that after a positive (negative) shock to the financing (marketing) effect of prepaid cards, retailers with high interest expense ratios increased prepaid card balances by 32.4% of the average level. Retailers in competitive markets reduced prepaid card balances by 44.1% of the average level. Meanwhile, the amount (time-to-maturity) of bank loans decreased (increased) for retailers. In addition, prepaid card balances experience a sharp increase following debt covenant violations. Overall, the study implies that the financing benefit of receiving up-front cash is one of the reasons for retailers to sell prepaid cards. Retailers use prepaid cards to substitute short-term bank loans and trade credits.


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Details

Item Type: University of Pittsburgh ETD
Status: Unpublished
Creators/Authors:
CreatorsEmailPitt UsernameORCID
Fan, Xinxif28@pitt.eduxif28
ETD Committee:
TitleMemberEmail AddressPitt UsernameORCID
Committee ChairDenis, Daviddjdenis@pitt.edu
Committee MemberDenis, Dianedkdenis@pitt.edu
Committee MemberSchlingemann, FrederikSCHLINGE@pitt.edu
Committee MemberAndrew, Kochawkoch@pitt.edu
Committee MemberPeter, Ohpoh@pitt.edu
Date: 1 September 2021
Date Type: Publication
Defense Date: 19 July 2021
Approval Date: 1 September 2021
Submission Date: 28 July 2021
Access Restriction: 2 year -- Restrict access to University of Pittsburgh for a period of 2 years.
Number of Pages: 205
Institution: University of Pittsburgh
Schools and Programs: Joseph M. Katz Graduate School of Business > Business Administration
Degree: PhD - Doctor of Philosophy
Thesis Type: Doctoral Dissertation
Refereed: Yes
Uncontrolled Keywords: corporate finance
Date Deposited: 01 Sep 2021 05:54
Last Modified: 01 Sep 2021 05:54
URI: http://d-scholarship.pitt.edu/id/eprint/41521

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