Empirical essays on security offerings

Abstract

This PhD dissertation includes three papers in the area of empirical corporate finance, more particularly security offerings. The first paper examines the impact of CEOs’ education on their likelihood of choosing convertible bonds over non-hybrid securities. In line with upper echelons theory, we hypothesise that, CEOs with a stronger educational background are more likely to issue convertibles instead of standard securities given that convertibles are more complex and innovative securities than straight bonds and equity in terms of design and functionality. Using a dual step security choice model, we find evidence for this hypothesis. We also document that CEOs with an MBA degree are less likely to issue convertibles, consistent with the assumption that an MBA might dampen innovative behavior. Further tests suggest that CEOs with better education are more likely to issue convertibles when this is in their firm’s best interests, e.g., when their firm has high debt- and equity-related financing costs. The findings withstand a range of robustness tests. In the second paper, we test whether some managers are more skilful than others at seasoned equity offerings (SEOs). We use intertemporal persistence in stock price reactions around SEOs by the same firm to proxy for managerial skill. We find evidence of skill or persistence in performance at firm level, but not at the CEO level. Additional tests show that some firms are skilled at timing their seasoned equity offerings during times of nominal adverse selection costs. This paper contributes substantially to the literature on the role of firm and managerial characteristics in security offerings. In the third paper, we examine whether the role of investment bank reputation in explaining corporate bond fees and yields has changed following the Global Financial Crisis (GFC). We compare the effect of underwriter reputation on bond pricing during the GFC with that in pre- and post-crisis periods. We find that during non-crisis times, reputable underwriters charge premium fees and obtain lower yields. However, during the crisis period, the relationship between underwriter reputation and fee and yield is reversed. Reputable underwriters charge lower fees and obtain higher yields compared to less reputable underwriters. A plausible explanation for this finding lies in the tarnished reputation of large banks and the resulting competitive advantage gained by less reputable banks. However, the certification effect of reputable underwriters is restored following the crisis period, resulting in premium fees and lower yields.

Date of Award	1 Aug 2019
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Amedeo De Cesari (Supervisor) & Marie Dutordoir (Supervisor)