Investment Bank Expertise in Cross-Border Mergers and Acquisitions

We study the influence of country expertise of investment banks in facilitating cross‐border merger deals by analyzing a large international sample of merger and acquisition (M&A) deals. We provide evidence that the geographical proximity, cultural affinity, and local experience of investment banks advising bidding firms on cross‐border M&A deals significantly increase the probability of completion of the deal, significantly decrease the time required to complete the deal, and significantly increase the operating performance of the acquiring firm after the deal. Our results are robust to firm, deal, country‐specific factors, and endogeneity concerns

External sources of political connections: financial advisors and Chinese acquisitions

This study considers the effects of an external form of political connection, namely, politically connected financial advisors, on the value creation of Chinese acquiring firms over the period 2004–2014. Using data consisting of 1,623 Chinese mergers and acquisitions (M&As) deals, we show that politically connected financial advisors create significantly higher market value for acquiring firms, after controlling for firms' own political connections and reputation. Further analysis indicates that the appointment of political advisers can improve an acquiring firm's long‐term industry‐adjusted operating performance and help acquirers reduce bid premiums. We show that private firms and stock‐pay acquisitions are more likely to appoint politically connected financial advisors in M&A transactions, whereas our findings remain unchanged after controlling for endogeneities

Two essays on corporate financial policies

The first essay tests alternative theories about the effect of asset liquidity on capital structure and debt capacity. Using data from a broad sample of U.S. public companies, I find that leverage is positively related to asset liquidity. The relation is stronger following negative shocks to asset liquidity and is more significant at high levels of leverage. In addition, I find some evidence that the positive relation between asset liquidity and debt requires constraints on the disposition of liquid assets. The results are consistent with the view that the costs of financial distress and inefficient liquidation are economically important and that managers trade off the costs and benefits of debt when making capital structure decisions. The second essay investigates the effect of cash holdings on value, investment, and sales growth for financially constrained and unconstrained firms. Existing studies find that financially constrained firms accumulate higher cash holdings and retain a greater proportion of cash flow. However, there is limited evidence on whether cash is more valuable for constrained firms. I find that cash holdings are significantly more valuable for constrained firms than for unconstrained firms. Further analysis suggests that cash has higher value for constrained firms in part because, on the margin, cash allows constrained firms to increase investment into projects that are more valuable than those of unconstrained firms. The evidence is consistent with the hypothesis that greater cash holdings of constrained firms are a value-increasing response to costly external financing

Financial Constraints, Investment, and the Value of Cash Holdings

Previous studies report that cash holdings are more valuable for financially constrained firms than for unconstrained firms. We examine (i) why this is so and (ii) why some constrained firms appear to hold too little cash. Our results indicate that greater cash holdings are associated with higher levels of investment for constrained firms with high hedging needs and that the association between investment and value is stronger for constrained firms than for unconstrained firms. These findings imply that higher cash holdings allow constrained firms to undertake value-increasing projects that might otherwise be bypassed. We further find that some constrained firms exhibit low cash holdings because of persistently low cash flows. Overall, our findings support the view that greater cash holdings of constrained firms are a value-increasing response to costly external financing. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

Product market competition and corporate governance

This paper investigates whether product market competition acts as an external mechanism for disciplining management and also whether there is any relationship between the degree of competition a firm faces and its corporate governance. We find that firms in competitive industries or with low market power tend to have weak corporate governance structures. Results are robust to various competition measures at firm and industry levels, even after controlling for firm-specific variables. We further find that corporate governance quality has a significant effect on performance only when product market competition is weak. The overall evidence suggests that product market competition has a substantial impact on corporate governance and that it substitutes for corporate governance quality. Finally, we provide evidence that the disciplinary force of competition on management is from the fear of liquidation