Essays in empirical corporate finance

The first essay, "Mimicking Repurchases" studies the tendency of firms to mimic the repurchase announcements of their industry counterparts. The paper argues that a firm, by repurchasing its shares, sends a positive signal about itself and a negative one about its competitors. This induces the competing firms to mimic the behavior of the repurchasing firm by repurchasing themselves. The paper shows that, in concentrated industries, a repurchase announcement lowers the stock price of the other firms in the same industry. The other firms react by repurchasing themselves to undo these negative effects. Repurchases are chosen as a strategic reaction to other firms' repurchase decisions and are not motivated by the desire to time the market. The second essay, "Information Flows within Financial Conglomerates: Evidence from the Banks-Mutual Funds Relationship", studies how information flows within financial conglomerates by analyzing the relationships between mutual funds and banks which belong to the same financial group. The paper investigates the effect that the lending behaviour of affiliated banks has on the portfolio choice of the mutual funds that are part of the same group. The paper shows that fund (fund families) increase their stakes in the firms that borrow from their affiliated banks in the period following the deal by far greater amounts than other unaffiliated funds (fund families). The paper provides evidence that this strategy is information driven. The third essay "Does Costly Credit Lead to Better Investment Decisions? Evidence from Bank- and Bond-Financed Acquisitions", analyzes the implications of the cost of borrowing for the quality of firm investment decisions. The paper finds that as the cost of credit declines, the probability of a firm's announcing a takeover bid increases. However, these acquisitions are not entirely in the interests of the acquiring firms' shareholders. The short-run and long-run market reaction to the announcement of cash acquisitions funded using costly bank credit is significantly more positive than it is for those funded using cheap bank credit or similar non-bank financed acquisitions. This suggests that the findings are being driven by the screening and certification role that banks exert in transactions involving high cost borrowers.