Three essays on corporate finance regarding M&A, investment efficiency, and R&D

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Zhang, Zixu
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This dissertation is composed of three essays in the field of corporate finance. In the first one, we examine the role of country-level investor protections on the value of relationships between investment banks (IBs) and their corporate clients. Using an event-study approach and an international sample of consolidation activities in the investment banking industry, we document that clients of target IBs acquired by banks from stronger (weaker) investor protection countries realize lower (higher) returns upon merger announcement. This is consistent with a substitution effect between country-level investor protections and IB-level monitoring of client firms. Overall, our analysis highlights the economic role of country-level investor protection on the relationships between IBs and client firms in an international context. In the second essay, we use a sample of international public companies to investigate whether there is a difference between family firms and non-family firms in terms of their investment efficiency. In doing so, we argue that there would be a shift in investment inefficiency resulting from regulatory quality differences amongst countries. Mainly, we find that compared to non-family firms, family firms invest inefficiently. We also discover that such investment inefficiency of family firms can be ameliorated when different regulatory environments are taken into consideration. In addition, we find that board diversity and family-owned stakes in family firms would steer investment efficiency. In the third essay, we investigate whether there would be a significant difference of the market reaction reflecting on the stock return volatility on the strategic decision of R&D for both non-family and family firms on the U.S. market. In cognition literature, it is argued that investors would shift their attitude and behavior based upon whether the decision of a firm matches what investors’ perception or expectation. We find evidence that the stock return of non-family firms would be more volatile compared to family ones as R&D investments increases. We also discover in inverted U-shape relationship between stock return volatility and R&D investments of family firms themselves, and such relationship between stock return volatility and deviation of R&D investment to industry-median for non-family firms.
M&A, Family Firm, R&D, Event Study, Investment