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Abstract

This thesis comprises three essays in corporate finance and corporate governance. The common theme is how firms adjust their policies when legal and political institutions change the economic forces that govern corporate decision-making. The chapters study three distinct settings: local political corruption and environmental enforcement, data breach notification laws and managerial disclosure-related risk, and free speech protection and public information production. These settings are used to examine corporate carbon emissions, executive compensation design, and corporate debt structure, respectively.

Chapter 1 examines how local political corruption affects corporate carbon emissions. Using a sample of U.S. public firms over the 2002 to 2020 period and a corruption measure based on convictions of local public officials, we find that a one-standard-deviation increase in local corruption is associated with a 5.13 percent rise in firm-level carbon emissions. The relationship holds across instrumental-variable estimation that exploits the geographic isolation of state capitals from their population centres, propensity-score matching against firms in adjacent low-corruption states within the same industry, and a staggered difference-in-differences design around the enactment of anti-corruption laws in Texas and Florida. The pattern is consistent with a sheltering channel under which corrupt officials lower both the probability of detection and the severity of enforcement for environmental violations, weakening firms’ incentive to invest in carbon abatement. The effect is concentrated in firms operating in competitive product markets, in financially unconstrained firms, and in the period following the 2015 Paris Agreement, when environmental regulatory pressure intensified. Local corruption is also associated with fewer green patents and lower renewable-energy consumption.

Chapter 2 examines how data breach costs reshape the design of CEO compensation contracts. Exploiting the staggered adoption of U.S. state Data Breach Notification (DBN) laws, which require firms to disclose breaches to affected individuals and thereby raise the expected cost of cyber incidents, we find that boards provide CEOs with greater risk-taking incentives after the laws take effect. CEO Vega, the sensitivity of the CEO’s wealth to stock-return volatility, rises by 3.4 percent of the sample mean. The increase is driven by newly granted options, which the board controls, rather than by CEO option-exercise decisions, indicating that boards actively redesign compensation rather than respond passively. The effect is more pronounced when CEOs are more risk averse, when shareholders are better diversified, and when firms face greater outside investment opportunities. The pattern is consistent with an agency channel in which boards counteract the conservatism induced by managers’ heightened personal exposure to breach costs. A two-stage least-squares analysis using the DBN shock as an instrument for Vega shows that the resulting rise in Vega translates into lower cash holdings, higher leverage, higher research and development, and higher cashflow volatility, indicating that the contractual realignment has real consequences for corporate policy.

Chapter 3 examines how legal protection of public speech affects corporate debt structure. Exploiting the staggered enactment of state-level anti-SLAPP statutes between 2002 and 2023 in the U.S., we find that affected firms shift their outstanding debt composition from bank loans toward public bonds. The public-bond share rises by 7.3 percent of the sample mean and the bank-loan share falls by 11.9 percent. The shift concentrates in firms with more opaque pre-treatment information environments, stronger stakeholder voice, and stronger managerial concealment incentives, consistent with a transparency channel that narrows bondholders’ informational disadvantage relative to banks. Direct tests of the channel show that firm-initiated disclosure adopts a more negative tone across both press releases and 10-K filings, and stock-price crash risk measures fall after enactment. New public bonds carry lower at-issue spreads and longer maturities. The shift toward public-bond financing is concentrated in the most information-sensitive components on each side of the debt mix, with revolving credit declining and subordinated bonds rising. Bond-issuing firms also experience higher market valuations, larger capital expenditures, faster sales growth, and greater research investment in the post-adoption period.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HG Finance K Law > K Law (General)
Departments:	Bayes Business School > Bayes Business School Doctoral Theses Bayes Business School > Faculty of Finance Doctoral Theses

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