Three essays on corporate finance

This thesis contains three chapters that examine several research questions in corporate finance. In Chapter 1, we examine externalities of tunneling carried out by business group firms. We find that acquirers belonging to Korean business groups (i.e., chaebols) and their targets in intragroup M&As realize negative and positive returns around the M&A announcement dates, respectively. These M&As create negative (positive) externalities for an acquirer’s industry chaebol (non-chaebol) rivals by adversely (positively) affecting their values. The spillover effects are more pronounced when acquirers perform well or undertake rescue M&As and when acquirers’ controlling shareholders have greater control-ownership divergence or larger ownership in targets. Moreover, announcement returns for chaebol rivals decrease as their controlling shareholders’ tunneling incentives increase. In Chapter 2, we examine how private placements of equity (PPoEs) affect debtholder wealth. We find that banks charge higher loan spreads, require more collateral, and impose stricter covenants for PPoE firms than for propensity-score matched non-PPoE firms. The results are more pronounced for PPoEs without any issuance features that allow investors to perform monitoring/certification roles, particularly firms with poorer governance and higher information asymmetry. PPoE firms without issuance features also overinvest and their PPoE and post-placement M&A announcements are greeted more negatively in both bond and stock markets. Thus, debtholders lose in PPoEs mainly due to issuers’ managerial entrenchment. In Chapter 3, we examine how private placements of equity (PPEs) by firms with large public customers affect the value of issuing firms and their large public customers. We find that PPE firms with large public customers and their large customers realize significantly negative stock returns around the PPE announcement dates, which is consistent with the information revelation hypothesis. These results are particularly pronounced when large customers have higher information asymmetry and when the expected breakup costs are higher due to their strong supplier-customer relationships. Moreover, large customers of PPE firms experience poorer operating performance in the post-placement period than large customers of non-PPE firms.Doctor of Philosoph