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Title: Three essays on the effect of regulations on corporate capital structure, investment & performance
Author: Saher, Zoya
ISNI:       0000 0004 7967 3063
Awarding Body: University of Surrey
Current Institution: University of Surrey
Date of Award: 2019
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This research aims to examine the effects of regulations and institutions on key decisions of a firm. These include firm's capital structure and investment decisions, which in turn affect firm performance. In particular, we consider India's emerging market economy and the UK's developed economy as specific case studies. The Thesis consists of three key empirical papers. In the first paper, we use the introduction and completion of Clause 49, a transparency and disclosure reform aimed at strengthening investor protection, as a natural experiment to estimate the effect of increased disclosure on reliance of debt/equity using firm-level panel data for the period 1996-2014. This helps us to redress the potential endogeneity of firm-level disclosure on capital structure decisions. Estimates of difference-in-difference models suggest that the introduction and completion of Clause 49 led to a greater (lower) reliance on equity (debt) and also a reduction in reliance on bank loans among domestic listed (relative to cross-listed) Indian firms in our sample; however, similar effect was not observed among firms belonging to business groups. We then explore possible channels through which increased disclosure can influence capital structure choices of different groups of firms. In the second paper, we examine the effects of executive compensation on corporate capital structure and market performance using the introduction of Director's Remuneration Regulation (DRR2013) in the UK as a natural experiment. Given the potential endogeneity of executive compensation, we use the introduction of DRR2013 as a natural experiment to identify the causal effect of executive compensation on corporate capital structure in the UK. Results from our analysis suggest that an increase in equity based compensation share decreases firm's reliance on debt and improves firm performance; an increase in bonus compensation share, however, leads to an increase in reliance on debt but doesn't seem to have a significant effect on performance. We attribute these results to the debt agency theory, after controlling for managerial over-confidence indices. Finally, the last paper uses India's historical land ceiling legislation to estimate its effect on land acquisition for industries affecting corporate investment in India. We argue that the implementation of the land ceiling legislations had increased the transaction costs of buying land and the price premium firms pay when acquiring land, thus inducing firms to invest less in land and capital. Moreover, the adverse effect of land ceiling legislations is worse in states with more fertile land that had lower ceiling size under the ceiling legislation. Analysis using the state-level data over 1960-85 during the period most of these legislations were formulated confirms our conjecture; the adverse effects of lower ceiling size on corporate investment seem to persist in the long- run over 1960-2015.
Supervisor: Pal, Sarmistha ; Tiago, Pinheiro Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral