Essays in corporate finance.

This dissertation consists of three distinct empirical essays in corporate finance. The essays examine how individuals, firms and industries respond to risks that arise in their normal course of business. In the first essay, we show that the extent of foreign currency hedging in an industry affects the pass-through of exchange-rate shocks to product prices. For this reason, an individual firm's foreign exchange exposure depends on the hedging decisions of its competitors. The second essay examines how managers and controlling shareholders respond to insider trading restrictions that the government imposes on them in an effort to protect the interests of minority shareholders. Using a sample of 2,827 firms from 21 countries we examine whether insider trading laws achieve the primary objective for which they are introduced---protecting uninformed investors from private information-based trading. We find that, on average, insider trading restrictions reduce private information trading. However, when control is concentrated in the hands of a large shareholder, insider trading regulation is less effective in reducing private information trading. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources, creating more information asymmetry and thereby encouraging private information trading by informed outsiders. The third essay steps away from the individual or firm-level analysis towards a sector-wide analysis of response to business risk. The third essay examines how an industry responds to the risk imposed on it by the actions of another industry with which it bears a product market relationship. Specifically, we examine whether horizontal acquisitions create buying power by examining the effect of a broad, inter-industry sample of horizontal acquisitions on the selling price of supplier industries. We find that horizontal acquisitions result in lower selling prices for dependent supplier industries. Moreover, supplier industries respond to this adverse affect by undertaking countervailing acquisitions of their own.PhDFinanceSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/125457/2/3192735.pd