Three essays in dynamic corporate finance

The three essays constituting this thesis focus on financing and cash management policy. The first essay aims to shed light on why firms issue debt so conservatively. In particular, it examines the effects of shareholder and creditor protection on capital structure choices. It starts by building a contingent claims model where financing policy results from a trade-off between tax benefits, contracting costs and agency costs. In this setup, controlling shareholders can divert part of the firms' cash ows as private benefits at the expense of minority share- holders. In addition, shareholders as a class can behave strategically at the time of default leading to deviations from the absolute priority rule. The analysis demonstrates that investor protection is a first order determinant of firms' financing choices and that conflicts of interests between firm claimholders may help explain the level and cross-sectional variation of observed leverage ratios. The second essay focuses on the practical relevance of agency conflicts. De- spite the theoretical development of the literature on agency conflicts and firm policy choices, the magnitude of manager-shareholder conflicts is still an open question. This essay proposes a methodology for quantifying these agency conflicts. To do so, it examines the impact of managerial entrenchment on corporate financing decisions. It builds a dynamic contingent claims model in which managers do not act in the best interest of shareholders, but rather pursue private benefits at the expense of shareholders. Managers have discretion over financing and dividend policies. However, shareholders can remove the manager at a cost. The analysis demonstrates that entrenched managers restructure less frequently and issue less debt than optimal for shareholders. I take the model to the data and use observed financing choices to provide firm-specific estimates of the degree of managerial entrenchment. Using structural econometrics, I find costs of control challenges of 2-7% on average (.8-5% at median). The estimates of the agency costs vary with variables that one expects to determine managerial incentives. In addition, these costs are sufficient to resolve the low- and zero-leverage puzzles and explain the time series of observed leverage ratios. Finally, the analysis shows that governance mechanisms significantly affect the value of control and firms' financing decisions. The third essay is concerned with the documented time trend in corporate cash holdings by Bates, Kahle and Stulz (BKS,2003). BKS find that firms' cash holdings double from 10% to 20% over the 1980 to 2005 period. This essay provides an explanation of this phenomenon by examining the effects of product market competition on firms' cash holdings in the presence of financial constraints. It develops a real options model in which cash holdings may be used to cover unexpected operating losses and avoid inefficient closure. The model generates new predictions relating cash holdings to firm and industry characteristics such as the intensity of competition, cash flow volatility, or financing constraints. The empirical examination of the model shows strong support of model's predictions. In addition, it shows that the time trend in cash holdings documented by BKS can be at least partly attributed to a competition effect.

Quantification of the relation between surface morphodynamics and subsurface sedimentological product in sandy braided rivers

This study uses digital elevation models and ground-penetrating radar to quantify the relation between the surface morphodynamics and subsurface sedimentology in the sandy braided South Saskatchewan River, Canada. A unique aspect of the methodology is that both digital elevation model and ground-penetrating radar data were collected from the same locations in 2004, 2005, 2006 and 2007, thus enabling the surface morphodynamics to be tied explicitly to the associated evolving depositional product. The occurrence of a large flood in 2005 also allowed the influence of discharge to be assessed with respect to the processproduct relationship. The data demonstrate that the morphology of the study reach evolved even during modest discharges, but more extensive erosion was caused by the large flood. In addition, the study reach was dominated by compound bars before the flood, but switched to being dominated by unit bars during and after the flood. The extent to which the subsurface deposits (the product') were modified by the surface morphodynamics (the process') was quantified using the changes in radar-facies recorded in sequential ground-penetrating radar surveys. These surveys reveal that during the large flood there was an increase in the proportion of facies associated with bar margin accretion and larger dunes. In subsequent years, these facies became truncated and replaced with facies associated with smaller dune sets. This analysis shows that unit bars generally become truncated more laterally than vertically and, thus, they lose the high-angle bar margin deposits and smaller scale bar-top deposits. In general, the only fragments that remain of the unit bars are dune sets, thus making identification of the original unit barform problematic. This novel data set has implications for what may ultimately become preserved in the rock record.

Neuropathic Pain Phenotype Does Not Involve the NLRP3 Inflammasome and Its End Product Interleukin-1β in the Mice Spared Nerve Injury Model.

The NACHT, LRR and PYD domains-containing protein 3 (NLRP3) inflammasome is one of the main sources of interleukin-1β (IL-1β) and is involved in several inflammatory-related pathologies. To date, its relationship with pain has not been studied in depth. The aim of our study was to elucidate the role of NLRP3 inflammasome and IL-1β production on neuropathic pain. Results showed that basal pain sensitivity is unaltered in NLRP3-/- mice as well as responses to formalin test. Spared nerve injury (SNI) surgery induced the development of mechanical allodynia and thermal hyperalgesia in a similar way in both genotypes and did not modify mRNA levels of the NLRP3 inflammasome components in the spinal cord. Intrathecal lipopolysaccharide (LPS) injection increases apoptosis-associated speck like protein (ASC), caspase-1 and IL-1β expression in both wildtype and NLRP3-/- mice. Those data suggest that NLRP3 is not involved in neuropathic pain and also that other sources of IL-1β are implicated in neuroinflammatory responses induced by LPS.

Governance mode vs. governance fit: Performance implications of make-or-ally choices for product innovation in the worldwide aircraft industry, 1942-2000

We examine the impact of governance mode and governance fit on performance in make-or-ally decisions. We argue that while horizontal collaboration and autonomous governance have direct and countervailing performance implications, the alignment of make-or-ally choices with the focal firm's resource endowment and the activity's resource requirements leads to better performance. Data on the aircraft industry show that relative to aircraft developed autonomously, collaborative aircraft exhibit greater sales but require longer time-to-market. However, governance fit increases unit sales and reduces time-to-market. We contribute to the alliance and economic organization literatures. (Copyright © 2013 John Wiley & Sons, Ltd.)