Three essays on applied economics and finance
Abstract
This dissertation empirically analyzes the financial decision-making of private and public corporations. It comprises four main chapters. The second and third chapters examine how private agents respond to fiscal policies regarding taxes and government investment. The fourth chapter explores public institutional investors' risk manage- ment and investment strategies. The final chapter presents the conclusion. Chapter 2 focuses on capital structure and corporate tax. The motivation for Chap- ter 2 is to investigate whether tax policy affects the capital structure of Korean firms, which have a distinctive corporate structure in terms of a family-oriented conglomer- ate. We postulate that firms' responses to tax changes may differ depending on the country-specific corporate structure in Korea, even if corporate tax affects the cost of debt financing. Our findings support that corporate structure in terms of Korean conglomerates matters in debt financing. Using difference-in-differences and difference- in-difference-in-difference, we find that the effect of a tax cut on a firm's debt usage supports the trade-off theory, but the response to a tax rise does not vary based on corporate structure. In Chapter 3, I examine how government ownership is associated with firms' valua- tions and performances. As investors and blockholders in firms, government ownership can inefficiently affect firms' performance due to government political in uence rather than profit-seeking. However, government ownership can benefit the firm by reducing resource constraints. The aim of Chapter 3 is to determine whether government ownership always leads to inefficient results using Korean firm data. I provide evi- dence that government ownership is associated with higher market-oriented values for government-owned firms compared to non-owned firms, and the effect has a non-linear relationship. While the activism of public agents does not provide better monitor- ing and valuation of firms, I suggest that even if the benefit of government ownership outweighs the cost, the activism of public agents crowds out the private agents' activity. In Chapter 4, I investigate the factors that lead to different investment behaviors between public institutional investors based on the Public Pension Funds (PPFs) data of OECD countries. Although all financial investors aim to maximize investment prof- its, PPFs are established for public welfare. The objective of Chapter 4 is to study the main factors that lead to similar and different investment decisions of PPFs compared to other private institutional investors based on modern portfolio theory and behavioral finance. I demonstrate partial acceptance of the risk transfer hypothesis and the effect of institutional conditions on PPF operations. I find no short-term performance persis- tence as a formulated management practice and accept the efficient market hypothesis in performance. Based on the switched signs of the interaction effect of cultural values and financial factors on risk-taking, I suggest that asset allocation depends on the degree of risk among specific assets conditional on institutional conditions.
Degree
Ph. D.