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.

An Exorbitant Privilege in the First Age of International Financial Integration

The exorbitant privilege literature analyzes the positive differential returns on net foreign assets enjoyed by the United States in the last quarter of the twentieth century as the issuer of the global reserve currency. In the first age of international financial integration (1870-1914), the global reserve currency of the period was the British pound sterling. Whether the United Kingdom enjoyed a similar privilege is analyzed with a new dataset, encompassing microdata on railroad and government financial securities. The use of microdata avoids the flaws that have plagued the US studies, particularly the use of incompatible aggregate variables. New measures of Britain’s net external position provide estimates on capital gains and dividend yields. As the issuer of the global reserve currency, Britain received average revenues of 13.4% of GDP from its international investment position. The country satisfied the necessary condition for the existence of an exorbitant privilege. Nonetheless, Britain’s case is slightly different from the American one. British external assets received higher returns than were paid on external liabilities for each class, but British invested mostly in securities with low profile of risk. The low return on its net external position meant that, for most of the time, Britain would not receive positive revenues from the rest of the world if it were a net debtor country, but this pattern changed after 1900. The finding supports the claim that, at least partially, exorbitant privilege is a general characteristic of the issuer of the global reserve currency and not unique to the late twentieth century US.

(inter)FACE: A Study of Black Families Advocating for their Children’s Education

Black students are consistently overrepresented in categories of academic underachievement. Parent engagement has long been touted as an effective strategy for improving the educational outcomes of Black children. However, most parent engagement research reflects deficit based perspectives frame Black parents as problems that must be fixed or mitigated before they can positively contribute to their children’s education. Consequently, parent engagement research and frameworks ignore the perspectives of Black parents and the assets they use to participate effectively in parent engagement. In this case study, I draw on individual and focus group interview data, documents, and observations, to examine how fifteen Black families, collectively known as FACE: 1) define and participate in parental engagement, 2) experience barriers to and opportunities for engagement, and 3) experience benefits of engagement for their children and their own personal development. Guided by Black Feminist and Critical Race Theories, I show how Black families in this study used a myriad of engagement strategies to improve their children’s educational experiences which were invisible to schools and how they used school-sanctioned engagement activities to meet their own objectives. Ultimately, I argue that school-centered parent engagement frameworks and models are ineffective for empowering Black families and accounting for the essential ways that these families contribute to the well-being of their children. Based on my findings, I discuss implications for theory, practice and policy, and research, and make recommendations for a more family-centered approach to parent engagement.