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The first chapter of my dissertation uses the financial crisis as a natural experiment to analyst the extent to which firms adjust financial policies on the margin in response to the credit supply shock of the financial crisis. We document significant reductions in corporate payouts - both dividends and (to a larger extent) share repurchases - during the 2008-2009 financial crisis. Payout reductions are more likely in firms with higher leverage, higher investment opportunities, and lower cash balances - i.e., those likely to face higher costs of external finance. Moreover, firms appear to use the proceeds from the reduction in payout to maintain cash levels and to fund investment. These findings are consistent with the view that an exogenous shock to the supply of credit during the financial crisis increased the marginal benefit of cash retention, leading some firms to reallocate funds that would otherwise be distributed to shareholders. These results demonstrate how firms can use the proceeds from payout reductions as a substitute source of funding and gain financial flexibility to prevent significant reductions in investment and cash holding levels compared to those firms that do not have any sort of payout. The second chapter of my dissertation uses a direct measure of investor attention based on search frequency in Google to study the attention-related effects of share repurchase announcements. I report an increase in individual investor attention around open-market share repurchase announcements. Further, in the cross-section of repurchase announcements, greater investor attention is associated with more efficient stock price reactions, especially for more neglected firms. This evidence suggests that increased investor attention is associated with faster price discovery. In addition to attracting retail investors, share repurchase announcements attract analyst coverage. Analyst coverage is directly related to repurchase announcements after controlling for endogeneity, firm characteristics, and analyst preference.
A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy.
Includes bibliographical references.
Yingmei Cheng, Professor Directing Dissertation; Thomas Zuehlke, University Representative; Donald Autore, Committee Member; Gonul Colak, Committee Member.
Florida State University
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