Essays in Corporate Finance Policies
Date
2025
Authors
Mumme, Adam Paul
Editors
Advisors
Karpavicius, Sigitas
Xu, Limin
Xu, Limin
Journal Title
Journal ISSN
Volume Title
Type:
Thesis
Citation
Statement of Responsibility
Conference Name
Abstract
This thesis contributes to the literature on corporate financing policy. In particular, it benefits the literature on capital structure by investigating the impact of Chief Executive Officer (CEO) turnovers on the leverage trends from before to after the turnover, and also the literature on Rights Offers (RO), but studying previously unexamined impacts of the components of the offer on both the share price behaviour during the RO timeline and shareholder participation in the offer. The results of Chapter 1 showed significantly different changes in corporate financing policies for firms that experienced a CEO turnover to those that did not. This was particularly so in the case of dismissal turnovers, external CEO replacements and CEO turnovers in smaller firms. The regression results indicated that over the same timeframe, the leverage level of firms that did not have a CEO turnover had a reversion to the mean leverage level; however, the firms that experienced a CEO turnover had a continuation of the leverage trend from before to after the turnover, which offsets this reversion. The results of this chapter help explain the determinants of capital structure outcomes. It will help the market and directors understand what to expect when there is a CEO turnover, including under the different circumstances of the turnover. Chapter 2 indicated unusual share price behaviour across the RO timeline. The share price follows a pattern where it increases on the final cum day of the rights offer, then it fails to fall to the theoretical ex-day price (TERP) on the ex-day, it then falls below the TERP and by the first day of trading the new RO issue, where the share price is at its lowest level, and then rebounds to a price slightly below the announcement day price. The results of the study provided some explanation for the share price behaviour by showing that the components of the offer influence the behaviour of the shareholder in selling to realise profits. A further explanation was the shareholders' inability to price the value of the right due to a lack of sophistication. This unusual behaviour allows for an arbitrage opportunity which allows additional returns of 5.2 percentage points (pp) above full participation in the RO. These findings will help shareholders as they will understand the importance of understanding the value of the right and also illustrate that short-term profit-taking may result in lower returns over holding for the longer term. The finding also provides managers a better understanding of what drives the share price behaviour over the RO time line, which will inform managers in the implications of constructing ROs in particular ways, leading to ROs with better outcomes. Chapter 3 investigates the impact of the RO features on the acceptance levels of the offer. The results found that shortfall applications increase the acceptance level of ROs by 17 pp, on average. Free attaching options did not encourage participation unless the options were close to or in the money, suggesting firms could reduce costs by not offering options that are too far from the money, as they add no benefit. Higher ratios of new shares offered to those already held deter offer take-up, which is likely due to shareholder wealth or cash flow restraints. ROs for the purpose of capital expenditure and debt reduction had higher levels of acceptance, as shareholders see value in these purposes. As these components of the offer are optional and come with associated costs, these findings will help firm managers better understand what factors will generate the best RO outcome for the firm.
School/Discipline
Adelaide Business School
Dissertation Note
Thesis (Ph.D.) -- University of Adelaide, Adelaide Business School, 2025
Provenance
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