Essays on corporate finance and governance

This dissertation contains three essays on corporate finance and governance which cover a range of topics including: entrepreneurial finance, mergers and acquisitions, financial performance, family ownership, private ownership, ownership change, agency problem, managerial incentives, and management labor markets. In the first two essays, I examine how corporate governance (e.g., family ownership, private ownership and ownership change) affects corporate finance (e.g., financial performance ROA, stock returns, investment opportunities Tobin’s q and firm valuation). In the third essay, I examine how corporate finance (e.g., relative financial performance) affects corporate governance (e.g., CEO turnover and appointment, executive promotion, and incentive mechanism). The first two essays focus on a specific M&A target market and link to entrepreneurial finance. I investigate the founder-controlled firms that are 100% acquired, and examine acquirer performance in cases where the founder remains in the firm post-merger. This research stems from separation of ownership and management in classical agency theory and entrepreneurial theory, and aims to fill the gap about the transition from owners to agents after founders sell their firms in a new corporate governance mechanism. In the first essay, I consider public founder-controlled targets and in the second essay I study private founder-controlled targets. The first essay focuses on the value of founders to their founding firms and, hence, to the acquirers of such firms. I find significant differences between the acquirers of firms where founders remain and the acquirers of firms where founders leave. The acquirers of firms in which founders remain exhibit a higher Tobin's q and greater cumulative abnormal returns, especially when founders remain as daily executives. The second essay mainly examines how the takeover premium of private firms is influenced by the decision to let the founder remain in the firm post-merger. I find significantly higher acquisition premiums and deal prices for those private target firms that are controlled by original founders, especially when the founders remain at their firms post-merger. The third essay provides a financial perspective for the career paths of personnel executives to CEO, and studies why so many COOs are promoted to CEO. This research reconciles both CEO turnover and internal promotion through an analysis of the new CEO selection conditional upon prior positions they have held. I identify key determinants that contain information of CEO’s ability to create value for shareholders. I find that internal COOs are more likely to become CEOs than CFOs and external candidates, and the likelihood is positively related to relative firm performance, executive rank and tenure