Essays on empirical finance
This dissertation consists of three essays on empirical finance. The first essay studies the impact of materialism, a prevalent consumer value and of rising importance in the digital age, on consumer debt repayment decisions. We show that high-materialism borrowers are less likely to be financially delinquent, responding more favorably to debt collection calls as the costs of inaction exceed the value of action. The underlying motives of materialistic behavior reveal that delinquency reduction in high-materialism borrowers is more pronounced for usage-oriented than for acquisition-oriented people. Moreover, strong positive transformation expectations held by high-materialism people lead to more effort throughout the repayment process to avoid deviation from expectancy. We also find evidence suggesting that past delinquent experience rings a bell to high-materialism borrowers, who are less apt to engage in multiple delinquencies over the course of the loan period. Further analyses document that lenders obtain greater returns from high-materialism borrowers, although hold indifferent perceptions of materialism levels in screening loan applications. Collectively, this study provides insights into the positive aspects of materialism and expands knowledge of materialistic ideology in consumer debt behaviors.
The second essay examines the effects of property rights protection on mergers and acquisitions (M&As). To establish causality, we exploit the plausibly exogenous variation generated by the enactment of China’s 2007 Property Law, which significantly strengthened the protection of tangible property rights. We document that firms display a higher probability of announcing M&A bids after the law’s enactment. In addition, firms with higher asset tangibility exhibit greater (less) likelihood of initiating cash-financed (stock-financed) M&A bids. Further, our findings suggest that increased product market competition and improved access to finance are two plausible underlying economic mechanisms through which property rights protection affects corporate takeovers. Overall, the findings shed new light on the real effects of property rights protection on the market for corporate control.
The third essay investigates the impact of place-based policies on corporate tax avoidance, using the staggered establishment of city-level high-tech zones in China. We show that, on average, firms headquartered in cities with high-tech zones experience a significant reduction in tax avoiding activities through financial reporting and an insignificant change in real cash tax payments, relative to control firms in other cities. This result is more pronounced when the incumbent communist party secretary at the city level faces greater pressure of climbing the political career ladder, consistent with politicians taking actions on tax revenue collection to build competitiveness in the political job market. We further show that the corporate response (i.e., increasing the book effective tax rate) to political pressure is concentrated in firms with greater incentives for tax avoidance. Taken together, this study deepens our understanding of the impact of place-based policies on firm-level tax outcomes.