Why do Firms Purchase Used Assets?

We hypothesize that the increase in expectation about future technological change decreases the likelihood for the purchase of new assets because the change may make the new assets obsolete. To test this hypothesis, we use patents and citations data to represent the expected technological change. We find that the purchases of and the amount spent on used assets increase with the expectation of technological change, while time to completion of the purchase and the number of bids decrease with the increase in expectations about technological change. We exploit industry deregulations to establish identification. In contrast to the literature, we find no empirical support for financial constraint as a reason for purchasing used assets.     

CEO's Religious Affiliation and Managerial Conservatism

We investigate whether managers' religious affiliations affect corporate decisions. We hand collect data on the religious affiliations of chief executive officers (CEOs) and find that firms with Catholic CEOs have less leverage, issue debt less often, increase business and geographic diversification, and invest less than firms with Protestant CEOs. We also find that the decisions of Catholic CEOs are associated with lower firm value. These corporate actions are also reflected in the CEOs’ personal decisions, such as owning fewer company stocks and playing less risky sports.     

HOW WELL DO MARKET TIMING,CATERING, AND CLASSICAL THEORIES EXPLAIN CORPORATE DECISIONS?

An important debate in corporate finance is whether chief executive officers (CEOs) exploit equity mispricing. In this article I construct a measure of the unexplained change in the CEO's stockholdings of the firm to empirically test the contrasting predictions of market timing, catering, and classical theories of corporate decisions. Consistent with the predictions of classical theories, I find that the firm increases its investments and even uses expensive capital to finance investments when there is an unexplained increase in the CEO's stockholdings. However, I find no empirical support for catering predictions and weak empirical support for market timing predictions.     

Information Asymmetry about Investment Risk and Financing Choice

Though it is generally accepted that information asymmetry has an impact on capital structure policy, the nature of the information asymmetry is not well understood. Recent theoretical work and empirical evidence suggests that financing choice depends upon the information asymmetry associated with the investment risk of the particular use of proceeds. Consistent with this view, using the sources and uses of funds framework, we find that equity is used to fund projects with greater information asymmetry about their risk such as research and development expenditure, while debt is used to fund investments with lower information asymmetry about their risk such as liquidity enhancement.     

Pandemics and cash

We investigate the relationship between firms’ cash holdings and pandemics. Our results show that compared to tele-workable firms, whose employees can work remotely, non-tele-workable firms with more on-site employees increase cash during pandemics. This increase in cash comes from short-debt, preferred stocks, reduction in capital expenditures, discontinuation of some operations and lower tax payments. Firms hold more cash as a reaction to higher default risk. For non-tele-workable firms, there is a positive relationship between abnormal stock returns and cash, suggesting that this increase in cash during pandemics is not driven by behavioral reasons but by increases in uncertainty in labor productivity.