Essays in corporate finance

China has been growing rapidly over the last decades. The private sector is the driving force of this growth. This thesis focuses on firm-level investment and cash holdings in China, and the chapters are structured around the following issues. 1. Why do private firms grow so fast when they are more financially constrained? In Chapter 3, we use a panel of over 600,000 firms of different ownership types from 1998 to 2007 to find the link between investment opportunities and financial constraints. The main finding indicates that private firms, which are more likely to be financially constrained, have high investment-investment opportunity sensitivity. Furthermore, this sensitivity is relatively lower for state-owned firms in China. This shows that constrained firms value investment opportunities more than unconstrained firms. To better measure investment opportunities, we attempt to improve the Q model by considering supply and demand sides simultaneously. When we capture q from the supply side and the demand side, we find that various types of firms respond differently towards different opportunity shocks. 2. In China, there are many firms whose cash flow is far greater than their fixed capital investment. Why is their investment still sensitive to cash flow? To explain this, in Chapter 4, we attempt to introduce a new channel to find how cash flow affects firm-level investment. We use a dynamic structural model and take uncertainty and ambiguity aversion into consideration. We find that uncertainty and ambiguity aversion will make investment less sensitive to investment opportunities. However, investment-cash flow sensitivity will increase when uncertainty is high. This suggests that investment cash flow sensitivities could still be high even when the firms are not financially constrained. 3. Why do firms in China hold so much cash? How can managers’ confidence affect corporate cash holdings? In Chapter 5, we analyse corporate cash holdings in China. Firms hold cash for precautionary reasons, to hedge frictions such as financing constraints and uncertainty. In addition, firms may act differently if they are confident or not. In order to determine how confidence shocks affect precautionary savings, we develop a dynamic model taking financing constraints, uncertainty, adjustment costs and confidence shocks into consideration. We find that without confidence shocks, firms will save money in bad times and invest in good times to maximise their value. However, if managers lose their confidence, they tend to save money in good times to use in bad times, to hedge risks and financing constraint problems. This can help explain why people find different results on the cash flow sensitivity of cash. Empirically, we use a panel of Chinese listed firms. The results show that firms in China save more money in good times, and the confidence shock channel can significantly affect firms’ cash holdings policy.

Convergent evolution of PICIs-mediated phage interference

Staphylococcal pathogenicity islands (SaPIs), the prototype members of the family of phage inducible chromosomal islands (PICIs), are extremely mobile phage satellites, which are transferred between bacterial hosts after their induction by a helper phage. The intimate relationship between SaPIs and their helper phages is one of the most studied examples of virus satellite interactions in prokaryotic cells. SaPIs encode and disseminate virulence and fitness factors, representing a driving force for bacterial adaptation and pathogenesis. Many SaPIs encode a conserved morphogenetic operon, including a core set of genes whose function allows them to parasitize and exploit the phage life cycle. One of the central mechanisms of this molecular piracy is the specific packaging of the SaPI genomes into reduced sized capsid structures derived from phage proteins. Pac phages were classically thought to be the only phages involved in the mobilisation of phage-mediated virulence genes, including the transfer of SaPIs within related and non-related bacteria. This study presents the involvement of S. aureus cos phages in the intra- and intergeneric transfer of cos SaPIs for the first time. A novel example of molecular parasitism is shown, by which this newly characterised group of cos SaPIs uses two distinct and complementary mechanisms to take over the helper phage packaging machinery for their own reproduction. SaPIbov5, the prototype of the cos SaPIs, does not encode the characteristic morphogenetic operon found in pac SaPIs. However, cos SaPIs features both pac and cos phage cleavage sequences in their genome, ensuring SaPI packaging in small- and full-sized phage particles, depending on the helper phage. Moreover, cos-site packaging in S. aureus was shown to require the activity of a phage HNH nuclease. The HNH protein functions together with the large terminase subunit, triggering cleavage and melting of the cos-site sequence. In addition, a novel piracy strategy, severely interfering with the helper phage reproduction, was identified in cos SaPIs and characterised. This mechanism of piracy depends on the cos SaPI-encoded ccm gene, which encodes a capsid protein involved in the formation of small phage particles, modifying the assembling process via a scaffolding mechanism. This strategy resembles the ones described for pac SaPIs and represents a remarkable example of convergent evolution. A further convergent mechanism of capsid size-reduction was identified and characterised for the Enterococcus faecalis EfCIV583 pathogenicity island, another member of the PICI family. In this case, the self-encoded CpmE conducts this molecular piracy through a putative scaffolding function. Similar to cos SaPIs, EfCIV583 carries the helper phage cleavage sequence in its genome enabling its mobilisation by the phage terminase complex. The results presented in this thesis show how two examples of non-related members of the PICI family follow the same evolutionary convergent strategy to interfere with their helper phage. These findings could indicate that the described strategies might be widespread among PICIs and implicate a significant impact of PICIs mediated-virulence gene transfer in bacterial evolution and the emergence of pathogenic bacteria.