Essays in financial economics

Abstract

This dissertation is composed of three stand-alone research projects in corporate governance, banking and empirical asset pricing.

In the first project, I use a sample of S&P 1500 firms to examine the role of outside directors with extended tenures in board-level governance, monitoring decisions, and advising outcomes. I find that firms with a higher proportion of directors with extended tenures have lower CEO pay, higher CEO turnover sensitivity following poor performance, and a smaller likelihood of intentionally misreporting earnings. These firms are less likely to make acquisitions, while the acquisitions that are made are of higher quality. My results show that regulatory efforts to impose term limits may, therefore, be misguided.

In the second project, I use a sample of large banks across 38 countries to examine how the concentration of the banking system impacts the choice of business activities and consequently the stability of banks. I show that banks in less concentrated banking systems have higher levels of non-traditional business activities with higher shareholder returns, but at a cost of increased systemic risk. In contrast, the non-traditional business activities in highly concentrated banking systems help reduce the volatility of profits and also the systemic risk of banks. Unlike previous research, I show that there is not always a one-to-one relationship between non-traditional business activities and systemic risk.

In the third project, I propose a novel measure of institutional attention based on readership statistics of news articles on Bloomberg terminals. I find that investors pay more attention to news stories for larger and low book-to-market firms. Contrary to previous studies, I do not find that institutional attention is reduced on Fridays. There is a sharp increase in abnormal turnover and absolute adjusted returns on days when institutional investors pay attention to news. The effects of institutional investor attention are much larger for smaller firms. Finally, while short term reversals are reduced on days after news is published, I provide some evidence that short term reversals do not occur on days after published news is read.