Essays in Banking and Corporate Finance Defended on Thursday, 25 June 2015

This dissertation bundles three empirical studies in the area of corporate finance and banking. These studies investigate corporates’ financing activity with a special focus on the interaction between the banking industry and corporate borrowers. By showing how changes in the banking industry affect firms’ financing decision and performance, this dissertation highlights the important role of the banking industry in shaping the real economy in a world of market friction in place. Chapter 2 asks the question whether and how government interventions in the U.S. banking sector have benefited the U.S. corporate borrowers during the financial crisis of 2007-2009. We focus on firms’ stock performance and find that government capital infusions in banks have a significantly positive impact on borrowing firms’ stock returns. Chapter 3 looks into firm’s bond maturity dispersion activity and the impact on firms’ funding liquidity. We find that larger, more leveraged, less profitable, growth-oriented, and non-bank dependent firms exhibit the largest maturity dispersion of outstanding bonds. We further find that more bond maturity dispersion results in higher funding availability and lower funding costs. The effects are stronger for firms that face more funding liquidity risk. Chapter 4 investigates whether labor market frictions in the target market influence the mode in which out-of-state banks enter the new market following the U.S. interstate banking deregulation and consequently affect local economic activity. The result shows that banks enter new markets by establishing new branches after the relaxation of non-compete enforcement in the target market, while they enter by acquiring incumbent banks’ branches after the enforcement becomes restrictive in the target market. Interestingly, only bank entries via new branches significantly increase bank competition, improve the availability of credit to small businesses, and facilitate economic growth.

Keywords

Bank-firm relationships, Stock markets, Banking crisis, Government intervention, bond maturity, rollover risk, Bank entry, Economic activity, Labor market flexibility