This dissertation studies the real effects of firms’ financing decisions as well as the economics consequences of bias in fair value prices of corporate bonds. The first chapter examines the impact of compliance with changes in mandated financial reporting on corporate financing and investment decisions. I employ the recent implementation of ASC 842, which required the capitalization of all operating leases, as a plausible exogenous shock to managers’ information set and conduct a differences-in-differences analysis. Using a novel dataset on machine equipment transactions, I provide four unique insights. First, relative to private firms unaffected by ASC 842, public firms exhibit a significant decline in leased equipment. In contrast there is no corresponding decline in equipment purchased through secured loans. Second, although there is no change in the aggregate amount of purchases, I show that the change equipment characteristics such as machine age and “deployability” suggest public firms substitute their financing method from leasing to purchasing following ASC 842. Third, consistent with the notion that leases allow divisional managers more flexibility to invest without having to seek approval from the corporate office, the post-ASC 842 decrease in leasing activity is more pronounced among public firms with multiple branches and subsidiaries. Finally, I show that public firms improve investment efficiency as a result of compliance with ASC 842. In the second chapter, my co-authors Riddha Basu and Manpreet Singh, and I provide the first evidence on the physical capital reallocation effect of temporary federal tax incentives. We use data on a broad range of $298.6 billion worth of equipment firms financed through secured debt. These equipment acquisitions are spread over 3.32 million equipment transactions by 688,000 small businesses during 1998-2019. We find that accelerated depreciation encourages the utilization of new capital goods. The tax subsidy on new equipment increases the supply of old equipment in the secondary market and lowers the price of the old equipment. The reduced cost of old equipment thus eases the capital constraints for some small businesses to increase investment, adopt new technology, and encourage business entry. Our empirical results highlight how investment in new capital goods motivated by tax incentives fosters the reallocation of old capital goods in the economy. The third chapter investigates the impact of competition among bond pricing agencies (BPAs) on bias in fair value prices, and whether there is an effect on liquidity in the corporate bond markets. Unique to Korea, BPAs are agencies which provide fair value estimates of all OTC traded products to financial institutions. I conduct a difference-in-differences analysis using the entry of a fourth BPA as a shock to competition to study the BPAs’ reporting behavior. I find that an increased competition led to an increased bias. The impact of competition is higher for securities that are not traded, less liquid, and have higher credit ratings. Moreover, my results provide new insights on the real effects of accounting by showing that bias in fair value estimates decreases liquidity in the corporate bond markets.

Creator

• Kim, Doyeon

DOI

• https://doi.org/10.21985/n2-7g2n-a642

Subject

• Accounting
• Finance

Language

• en

Alternate Identifier

• etdadmin_upload_901879
• http://dissertations.umi.com/northwestern:16057

Date created

• 2022-01-01

Resource type

• Dissertation

Rights statement

• In Copyright