Essays on Corporate Finance and Governance /
- Author(s): Furchtgott, Michael
- et al.
This dissertation consists of three chapters that lie at the intersection where corporate finance meets law and economics. The first chapter (co-authored with Frank Partnoy) is a study on the relationship between shareholder litigation risk and the tactics that firms use for disclosing negative news. The empirical approach uses a natural experiment that arose from a Supreme Court decision that changed the policies used by the lower courts in certain jurisdictions. The main findings are that firms that were differentially impacted by the policy change were more likely to change their disclosure tactics. This result shows that firms respond to the litigation-risk environment in choosing their disclosure strategies. Although the court's policy decision was meant to protect firms from frivolous litigation, our evidence indicates that many firms responded by releasing information in a less timely and less transparent manner. The second chapter, which uses a unique dataset of out-of- court restructurings of Japanese firms, examines CEO turnover during the distress-resolution process. Taking into account the selection process behind CEO turnover, the empirical evidence indicates that all else equal, replacing the CEO during a restructuring leads to worse operating performance. This result suggests that in Japan's thin market for experienced executives, firing the CEO can have negative consequences for the firm's future performance. However, there is evidence that equity funds- --which have become a more significant force in Japan in recent years---are better at recruiting skilled managers than other types of restructuring leaders. The third chapter presents an empirically-motivated theoretical model that explores bankruptcy law in the context of distress externalities. The model describes industries in which one firm's liquidation can have negative effects on other firms that use similar assets as collateral in their own financing. The main result of the model is that courts can produce efficiency gains by using debtor-friendly bankruptcy laws that may violate the usual priority of claims on a distressed firm