Date of Award
Doctor of Philosophy
This dissertation studies the economic consequences of regulatory monitoring in two chapters. In the first chapter, using hand-collected data on Financial Industry Regulatory Authority (FINRA) violations, I examine how enforcement actions on financial institutions affect their investment bankersÃÂ¢?? role as mergers and acquisitions (M&A) advisors. I document that FINRA violations in the current year lead to a loss of M&A market share in the following year. I further find that client performance improves in future M&A deals advised by the sanctioned banks. Specifically, I document that future bidder (client) cumulative abnormal returns (CARs) are positively related to both the number of the violations and size of the monetary fines. Moreover, in future deals advised by the sanctioned investment banks, I find a decrease in premiums paid by bidders to targets and a lower likelihood of an upward offer price revision, which are value-increasing propositions for the bidders. I conjecture that after being sanctioned, investment bankers are more mindful of their behavior and increase their due diligence in advising future M&A deals, leading to better client performance. My study adds novel evidence to the existing literature that regulatory monitoring through enforcement actions on M&A advisors is effective.In the second chapter, I examine the association between voluntary disclosure and real earnings management in seasoned equity offering (SEO) firms. The Securities Offering Reform (SOR) in 2005 eased restrictions on firm disclosure prior to equity offerings. Prior literature find a better information environment with increased disclosure and reduced information asymmetry in seasoned equity offering (SEO) firms after the regulation. Building on these findings, my paper documents that SEO firms reduce real earnings management activities after the SOR became effective. My results indicate a substitution effect between voluntary disclosure and real earnings management in SEO firms. Specifically, when restrictions on disclosure prior to equity offerings are removed, SEO firms opt for increased disclosure and a reduced level of real activities manipulation. My paper adds to the literature on earnings management activities around SEOs. It contributes to the studies on the impact of voluntary disclosure on earnings management by employing a difference-in-differences design to address the endogeneity issue in this line of research. It also has important implications for regulations on securities offerings.
Received from ProQuest
Zhu, Yicheng, "Essays On The Economic Consequences Of Regulatory Monitoring" (2021). Open Access Theses & Dissertations. 3463.