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Essays in asset pricing and corporate finance

Corvino, R. (2019). Essays in asset pricing and corporate finance. (Unpublished Doctoral thesis, City, University of London)

Abstract

The thesis investigates the asset pricing implications of different issues arising in financial markets: the heterogeneity across types of investors and their ownership policy over time, the premium required by the investors for bearing the default risk of a company, and the proper compensation owed to the investors for lending to riskier countries.

In the first chapter, I quantify private benefits of control, and their impact on stock prices, by estimating a structural model of optimal shareholding using data on the ownership dynamics of Italian public companies. The results show that controlling shareholders (i) extract private benefits on average around 2% of equity value, and (ii) generally have positive and persistent impact on stock prices. The results imply that controlling shareholders extract private benefits without cost for the rest of the company shareholders. I also provide evidence of a synergistic effect when the largest shareholder is a corporation.

In the second chapter, which is coauthored with Gianluca Fusai, we estimate a credit risk structural model using information from both credit and equity markets. We infer the dynamics of asset and debt, and the default boundary, for worldwide non- financial firms. Using our estimation results, we compute the premium that compensates the investors for bearing the default risk of the firm. Exploiting the insights from the structural model, we address the relation between the premium and both credit default swaps (CDS) spreads and equity prices. We provide evidence that the dynamics of the premium may match with opposite dynamics of credit and equity securities across firms, depending on whether the firm generates positive or negative excess return on the asset.

In the last chapter, which is coauthored with Francesco Ruggiero, we analyse the relative pricing between sovereign credit default swap (CDS) spreads and sovereign bond yields for European countries during and after the sovereign debt crisis of 2010-2012. We investigate whether riskier countries compensate their debtholders properly by paying out sufficiently higher bond yields compared to those of safer countries. We test whether the differences across countries in terms of the default risk priced in the CDS spreads are consistently priced in the cross section of the bond yields, and we show that an inconsistent cross-sectional relationship between CDS spreads and bond yields emerges during the crisis period for all European countries. However, after the announcement of the Outright Monetary Transaction (OMT) program by the European Central Bank, the consistent cross-sectional relationship between default risk and bond yields is restored for the Eurozone countries only.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School
Cass Business School > Finance
Doctoral Theses
Doctoral Theses > Cass
URI: http://openaccess.city.ac.uk/id/eprint/22020
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