Empirical studies on share issuance and repurchase decisions

Financial constraints influence corporate policies of firms, including both investment decisions and external financing policies. The relevance of this phenomenon has become more pronounced during and after the recent financial crisis in 2007/2008. In addition to raising costs of external financing, the effects of financial crisis limited the availability of external financing which had implications for employment, investment, sale of assets, and tech spending. This thesis provides a comprehensive analysis of the effects of financial constraints on share issuance and repurchases decisions. Financial constraints comprise both internal constraints reflecting the demand for external financing and external financial constraints that relate to the supply of external financing. The study also examines both operating performance and stock market reactions associated with equity issuance methods. The first empirical chapter explores the simultaneous effects of financial constraints and market timing on share issuance decisions. Internal financing constraints limit firms’ ability to issue overvalued equity. On the other hand, financial crisis and low market liquidity (external financial constraints) restrict availability of equity financing and consequently increase the costs of external financing. Therefore, the study explores the extent to which internal and external financing constraints limit market timing of equity issues. This study finds that financial constraints play a significant role in whether firms time their equity issues when the shares are overvalued. The conclusion is that financially constrained firms issue overvalued equity when the external equity market or the general economic conditions are favourable. During recessionary periods, costs of external finance increase such that financially constrained firms are less likely to issue overvalued equity. Only unconstrained firms are more likely to issue overvalued equity even during crisis. Similarly, small firms that need cash flows to finance growth projects are less likely to access external equity financing during period of significant economic recessions. Moreover, constrained firms have low average stock returns compared to unconstrained firms, especially when they issue overvalued equity. The second chapter examines the operating performance and stock returns associated with equity issuance methods. Firms in the UK can issue equity through rights issues, open offers, and private placement. This study argues that alternative equity issuance methods are associated with a different level of operating performance and long-term stock returns. Firms using private placement are associated with poor operating performance. However, rights issues are found empirically to be associated with higher operating performance and less negative long-term stock returns after issuance in comparison to counterpart firms that issue private placements and open offers. Thus, rights issuing firms perform better than open offers and private placement because the favourable operating performance at the time of issuance generates subsequent positive long-run stock price response. Right issuing firms are of better quality and outperform firms that adopt open offers and private placement. In the third empirical chapter, the study explores the levered share repurchase of internally financially unconstrained firms. Unconstrained firms are expected to repurchase their shares using internal funds rather than through external borrowings. However, evidence shows that levered share repurchases are common among unconstrained firms. These firms display this repurchase behaviour when they have bond ratings or investment grade ratings that allow them to obtain cheap external debt financing. It is found that internally financially unconstrained firms borrow to finance their share repurchase when they invest more. Levered repurchase firms are associated with less positive abnormal returns than unlevered repurchase firms. For the levered repurchase sample, high investing firms are associated with more positive long-run abnormal stock returns than low investing firms. It appears the market underreact to the levered repurchase in the short-run regardless of the level of investments. These findings indicate that market reactions reflect both undervaluation and signaling hypotheses of positive information associated with share repurchase. As the firms undertake capital investments, they generate future cash flows, limit the effects of leverage on financial distress and ultimately reduce the risk of the equity capital.

The pathophysiology of CADASIL: studies in a Scottish cohort

Since identification that mutations in NOTCH3 are responsible for cerebral autosomal dominant arteriopathy with subcortical infarcts and leucoencephalopathy (CADASIL) in the early 1990s, there has been extensive characterisation of the clinical and radiological features of the disease. However therapeutic interventions remain elusive, partly due to a limited understanding of the vascular pathophysiology and how it leads to the development of strokes, cognitive decline and disability. The apparent rarity and heterogenous natural history of CADASIL potentially make conducting any longitudinal or therapeutic trials difficult. The role of disease biomarkers is therefore of some interest. This thesis focuses on vascular function in CADASIL and how it may relate to clinical and radiological markers of disease. Establishing the prevalence of CADASIL in the West of Scotland was important to assess the impact of the disease, and how feasible a trial would be. A mutation prevalence of 10.7 per 100,000 was demonstrated, suggesting significant under diagnosis of the disease across much of Scotland. Cerebral hypoperfusion is thought to be important in CADASIL, and it has been shown that vascular abnormalities precede the development of brain pathology in mouse models. Investigation of vascular function in patients, both in the brain and systemically, requires less invasive measures. Arterial spin labelling magnetic resonance imaging (MRI) and transcranial Doppler ultrasound (TCD) can both be used to obtain non-invasive and quantifiable indices of vascular function. Monitoring patients with MRI whilst they receive different concentrations of inspired oxygen and carbon dioxide can provide information on brain function, and I reviewed the practicalities of this technique in order to guide the design of the studies in this thesis. 22 CADASIL patients were recruited to a longitudinal study. Testing included peripheral vascular assessment, assessment of disability, neurological dysfunction, mood and cognition. A CO2 reactivity challenge during both TCD and arterial spin labelling MRI, and detailed MRI sequences were obtained. I was able to demonstrate that vasoreactivity was associated with the number of lacunes and brain atrophy, as were carotid intima-media thickness, vessel stiffness, and age. Patients with greater disability, higher depressive symptoms and poorer processing speed showed a tendency to worse cerebral vasoreactivity but numbers were small. This observation suggests vasoreactivity may have potential as a therapeutic target, or a biomarker. I then wished to establish if arterial spin labelling MRI was useful for assessing change in cerebral blood flow in CADASIL patients. Cortical grey matter showed the highest blood flow, mean (SD), 55 (10) ml/100g/min and blood flow was significantly lower within hyperintensities (19 (4) ml/100g/min; p <0.001). Over one year, blood flow in both grey matter (mean -7 (10) %; p = 0.028) and deep white matter (-8 (13) %; p = 0.036) declined significantly. Cerebrovascular reactivity did not change over one year. I then investigated whether baseline vascular markers were able to predict change in radiological or neuropsychological measures of disease. Changes in brain volume, lacunes, microbleeds and normalised subcortical hyperintensity volume (increase of 0.8%) were shown over one year. Baseline vascular parameters were not able to predict these changes, or those in neuropsychological testing. NOTCH3 is found throughout the body and a systemic vasculopathy has been seen particularly affecting resistance vessels. Gluteal biopsies were obtained from 20 CADASIL patients, and ex vivo myography investigated the response to vasoactive agents. Evidence of impairment in both vasodilation and vasoconstriction was shown. The addition of antioxidants improved endothelium-dependent relaxation, indicating a role for oxidative stress in CADASIL pathology. Myography measures were not related to in vivo measures in the sub-group of patients who had taken part in both studies. The small vessels affected in CADASIL are unable to be imaged by conventional MR imaging so I aimed to establish which vessels might be responsible for lacunes with use of a microangiographic template overlaid onto brain images registered to a standard brain template. This showed most lacunes are small and associated with tertiary arterioles. On the basis of this thesis, it is concluded that vascular dysfunction plays an important role in the pathophysiology of CADASIL, and further assessment of vascular measures in longitudinal studies is needed. Arterial spin labelling MRI should be used as it is a reliable, non-invasive modality that can measure change over one year. Furthermore conventional cardiovascular risk factor prevention should be undertaken in CADASIL patients to delay the deleterious effects of the disease.