Going public, Information and Financial Contracting
On Monday 3 June 2019 Xiaoyu Zhang will hold a trial lecture on a prescribed topic and defend her thesis for the PhD degree at NHH.
Prescribed topic for the trial lecture:
The rise of fin tech in corporate finance: Implications for security issuance
10:15 in Aud. B, NHH
Title of the thesis:
Essays on Empirical Corporate Finance
Going public or completing an IPO, is one of the most important events during a firm’s life cycle. It may have substantial impact over a firm in two main aspects: ownership and information. First, going public significantly increases a firm’s investor base and hence makes ownership more dispersed. Second, a public firm is subject to strict disclosure regulation by the authority (e.g., SEC), and attracts more media and analyst coverage. This improves information transparency (the information transparency effect) and information quality of the firm (the information quality effect).
With these effects, Xiaoyu’s dissertation studies how going public influences financial contracting, in particular, the pricing and monitoring in loan contracts of the IPO firm. She finds that going public significantly decreases loan spread but increases bank monitoring in loan contracts, and the dissertation devotes much effort in distinguishing the following possible channels.
First, change in ownership after going public impedes lending relationship and shareholder monitoring over management, and bank monitoring is thus more desired to reduce borrower and managerial agency problems. In this sense, the ownership effect is positive on bank monitoring and loan spread.
Second, improved information quality reduces banks’ state-verification cost and hence lowers the cost of bank monitoring, thereby raising the supply of monitoring ex ante. That is, the information quality effect is positive on bank monitoring, but negative on loan spread.
Third, more transparency after going public reduces information asymmetry between the firm and external financiers like banks, thereby reducing lending costs and the demand of monitoring. Hence, the information transparency effect is negative on both loan spread and bank monitoring.
The dissertation also studies the relationship between IPO underpricing and firm’s borrowing costs (the second paper), and shows that firms with higher underpricing experience larger reduction in borrowing costs after IPO. This finding provides a new rationale to explain why issuers don’t get upset about underpricing.
The third paper investigates how passive institutional investors affect firms’ CSR investments. The paper develops a risk-management view of CSR by arguing that CSR provides insurance-like effects in adverse corporate events. While passive investors have diversified away most idiosyncratic risks, they therefore desire less CSR from portfolio firms.
12:15 in Aud. B, NHH
Members of the evaluation committee:
Professor Tore Leite (leader of the committee), Department of Finance, NHH
Professor An Yan, Department of Business Economics, Fordham University
Assistant Professor Hongda Zhong, Department of Finance, London School of Economics
Associate Professor Xunhua Su (main supervisor), Department of Finance, NHH
Professor Wenxuan Hou, University of Edinburgh Business School
Professor Michelle Lowry, Drexel University
Associate Professor Gregory Nini, Drexel University
The trial lecture and thesis defence will be open to the public. Copies of the thesis will be available from email@example.com.