Essays in corporate finance and banking

Abstract

This thesis consists of three empirical studies about corporate finance and banking.

In the first chapter, I investigate how CEOs communicate with the market. CEOs have incentives to communicate with their investors after news releases if the market misinterprets the news. I examine how CEOs communicate with the market through their trading patterns. I find that CEOs are more likely to purchase shares after positive and negative news releases, suggesting that they want to confirm their positive news if the market underreacts to it and want to mitigate the market overreaction to their negative news by purchasing shares. These patterns vary conditional on the information environment and news categories. My results suggest that CEOs can make the news salient via their trading pattern.

The second chapter uses staggered state-level bank deregulation events in the United States as exogenous shocks to investigate the effects of bank competition on bank liquidity creation at the state level. I document that state-level bank deregulation does not, on average, significantly affect state-level bank liquidity creation, while bank-level analyses demonstrate that enhanced bank competition decreases bank liquidity creation. In addition, I find that states and banks respond to the state-level deregulation events differently. My results suggest that the policy, which is applied to all heterogeneous banks and states in the same way, does not fit all.

In the third chapter, I examine how bank CEO debt incentives relate to bank liquidity creation. I find that higher CEO inside debt holdings are associated with lower bank liquidity creation, suggesting that CEOs with higher inside debt holdings adopt more conservative liquidity creation strategies. The result is driven by large banks, suggesting that CEOs in large banks manage banks more conservatively than CEOs in small banks, as their inside debt holdings increase. My results suggest that while regulators could increase bank liquidity creation by imposing lower CEO inside debt holding requirements, it could simultaneously make banks riskier. Debt-based compensation would be a double-edged sword for designing policy about bank liquidity creation and bank soundness.