Essays in Corporate Finance

Prior research has been divided regarding how firms respond to bankruptcy risk, largely revolving around two competing forces. On the one hand, asset substitution encourages firms to increase the riskiness of assets to extract value from creditors. On the other, firms want to minimize bankruptcy risk, either by reducing cash flow risk or through increasing the size of the firm. I test these two theories using a natural experiment of chemicals used in production processes being newly identified as carcinogenic to explore how firms may respond to potential negative cash flow resulting from litigation risk. I use plantlevel chemical data to study firm exposure to risk. I examine how responses between firms of differing levels of chemical exposure may vary within the industry, how firm financial distress affects firm response and whether public and private firms respond differently. In general, my research provides support for the asset substitution theory. My first paper studies how investment response varies based on level of carcinogenic exposure. I find that firms with moderate levels of exposure make efforts to mitigate their cash flow risk and reduce their exposure. At the same time, firms with high levels of exposure increase their exposure and riskiness of future cash flows. These findings are consistent with asset substitution theory. My second paper analyzes the interaction of financial distress and risk exposure. I find that firms in a stronger financial position are more likely to limit their exposure by reducing the number of exposed facilities. On the other hand, not only do firms in weaker financial position not decrease their exposure, I find that, in some instances, they increase their exposure to carcinogens. This work again supports the theory of asset substitution. Finally, in my third paper, I explore if public firms respond differently to a potential negative cash flow shock than do private firms. I test whether existing public firms are more likely to attempt to minimize their cash flow risk and thus reduce their carcinogen exposure than are private firms. I do not find evidence that public firms respond differently to this shock than do private firms.

CHARACTERISTICS OF PRIVATE HIGH SCHOOLS FOR STUDENTS WITH EMOTIONAL DISABILITIES AND PERCEPTIONS OF THEIR PUBLIC SCHOOL CASE MANAGERS

Placement of students with disabilities in private special-education schools remains costly and controversial. This is particularly concerning, given the lack of research on the characteristics and quality of these restrictive settings. The purpose of this study was to identify the academic and vocational course offerings and behavioral supports provided in private special-education schools the serve high school students with emotional disabilities (ED). Second, the research examined the perceptions of the quality of services in these setting from the perspectives of public school case managers. Using a mixed-method design to collect data, 9 administrative heads of private special-education schools were surveyed, and 7 public school case managers were interviewed. Results indicated that (a) private special-education schools offer the basic academic core courses needed to meet graduation requirements, (b) vocational options for students enrolled in these schools are quite limited, (c) these schools provide a variety of behavioral interventions and supports, and (d) case managers are concerned with the lack of academic rigor and inconsistent programming at these schools but applauded the notion that students with ED are exiting with a high school diploma. Findings from this study may have policy implications for improving and developing programming options for high school students with ED.