Essays in accounting and finance

Sayan Sarkar, University of Texas at El Paso


In my first essay, I investigate changes in a number of firm characteristics surrounding the change in debt policy (i.e., becoming unlevered). I do so to investigate why firms may lower their debt levels, and add insights to the zero-leverage puzzle. My main findings are that tax based explanations and market timing explanations do not explain the observed behavior of firms that become totally unlevered. My findings are most consistent with the pecking order theory (Myers and Majluf, 1984) and with Jensen’s (1986) theory of free cash flows. I also investigate whether financial constraint is somehow related to the decision to become debt free. But, I do not find any evidence that is consistent with this idea. Finally, I find that the sample firms are not screened out of the debt markets as I find that a large amount of the sample firms keep lines of credit open, but simply do not use them. In my second essay I focus on the use of external monitoring by private companies, domestic or international. I use World Bank data to explore the factors that are associated with the probability of using external monitoring by private firms in emerging and developing countries. In this research, the service of external auditors is considered as a proxy for external monitoring. I tested the model both on the full sample (114 countries) as well as on 5 different income clusters based on World Bank economic development categorization. From the results, I conclude that there is not a single set of universal factors associated with firms’ decision to engage external auditors. I observe that factors associated with external auditors, a proxy for monitoring, differ across the various categories of economic development. As a policy implication, there is need for a voluntary adoption of a uniform set of standards for external monitoring and auditing in this area.

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Recommended Citation

Sarkar, Sayan, "Essays in accounting and finance" (2016). ETD Collection for University of Texas, El Paso. AAI10118163.