Two essays in corporate finance
The first study focuses on inventory investments of two sets of Indian manufacturing firms: issuers and non-issuers firms of publicly issued debt during 1996–1997, a time period of robust economic growth and simultaneously an inward shift in the supply of bank loans hypothesized to have been instituted by the Reserve Bank of India (RBI). Non-issuer firms have significantly higher investment-liquidity sensitivities vis-à-vis issuer firms for inventory investments in 1996–1997. Issuer and non-issuer firms investing less than their internal funds have no differences in liquidity coefficients while firms investing more than their internal funds do. Issuer and non-issuer firms that do not face an increase in the cost of external debt have no differences in liquidity coefficients while the two set of firms that face an increase do. Differences in investment-liquidity sensitivities between the two set of firms arise from their differences in bank dependence and hypotheses including pure bank dependence, priority lending and loans above banks' rule for estimating a firm's debt capacity find empirical support. Bank characteristics based hypotheses including single banking relationship and weak banks with below Basle capital standards cannot explain differences in liquidity constraints. Alternative explanations including agency problems, the flypaper effect, over-investment, legal regimes of parent companies and crony capitalism do not find empirical support. The second study of this thesis focuses on the relation between managerial ownership and firm value in a sample of Indian manufacturing firms for the year 2001–2002. The value of the firms as proxied by estimated Tobin's Q first decreases and then increases as ownership becomes concentrated in the hands of managers and insiders. These empirical findings is in sharp contrast to prior empirical findings based on U.S. firms where Q first increases and then decreases as ownership becomes more concentrated in the hands of managers and insiders.
Lewellen, Purdue University.
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