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.

Improving the assessment and outcome of free tissue transfer breast reconstruction

Introduction: Free tissue transfer using an abdominal tissue flap is a commonly used method of breast reconstruction. However, there are well recognised complications including venous congestion, fat necrosis and flap loss associated with the perfusion of these flaps. Post-operative aesthetic outcome assessment of such breast reconstructions have also proven to be difficult with current methods displaying poor inter-rater reliability and patient correlation. The aim of this research was to investigate potential improvements to the post-operative outcome of free abdominal tissue transfer breast reconstruction by assessing the effects of vascular augmentation interventions on flap perfusion and to assess the use of real-time digital video as a post-operative assessment tool. Methods: An in-vivo pilot study carried out on 12 patients undergoing DIEP flap breast reconstruction assessed the effect on Zone IV perfusion, using LDI and ICG angiography, of vascular augmentation of the flap using the contralateral SIEA and SIEV. A further animal experimental study was carried out on 12 Sprague Dawley rats to assess the effects on main pedicle arterial blood flow and on Zone I and Zone IV perfusion of vascular augmentation of the abdominal flap using the contralateral vascular system. A separate post-operative assessment study was undertaken on 35 breast reconstruction patients who evaluated their own reconstructions via patient questionnaire and underwent photograph and real-time digital video capture of their reconstructions with subsequent panel assessment. Results: Our results showed that combined vascular augmentation of DIEP flaps, using both the SIEA and SIEV together, led to an increase in Zone IV perfusion. Vascular augmentation of the rat abdominal flaps also led to a significant increase in Zone I/IV perfusion, but the augmentation procedure resulted in a decreased main pedicle arterial blood flow. Our post-operative assessment study revealed that real-time digital video footage led to greater inter-rater agreement with regards to cosmesis and shape than photography and also correlated more with patient self-assessment. Conclusion: Vascular augmentation of abdominal free tissue flaps using the contralateral vascular system results in an increase to Zone IV perfusion, however this may lead to decreased main pedicle arterial blood flow. Real-time digital video is a valid post-operative aesthetic assessment method of breast reconstruction outcome and is superior to static photography when coupled with panel assessment.