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Reputation Effects on Corporate Finance
Number of pages
Roger, C. Y. Chen
徐守德, 李春安, 黃振聰
David, So-De Hsyu; Chun-An Li; Jen-Jsung Huang
Date of Exam
Date of Submission
corporate financing policies, corporate finance, convertible bond call, going-public decision, IPO mispricing, IPO long-run underperformance, capital structure, reputation
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For the past half a century, there has been progressive development in corporate finance theories, and among these, corporate financial decisions have been attracting the attention of outsiders. As the outsiders’ learning process of the firm’s private information determines the firm’s value, managers who are concerned with outsiders’ perceptions of their firms try to enhance their firms’ short-term reputation through their financial decisions. However, up to this date, few reputation models have been applied to predict these financial decisions.
Three corporate finance issues are involved to identify the reputation effects on corporate finance: (1) convertible bond call policies, (2) IPO decisions and activities, and (3) corporate financing policies. As for the first issue, this study constructs a two-period reputation model of a convertible bond call policy. This model concludes that in equilibrium, a firm with bad management quality and a bad reputation chooses to call, while a firm with good management quality or of a good reputation builds up it reputation by not calling the convertible bonds. This is consistent with the signaling theory proposed by Harris and Raviv (1985). However, the reputation model here identifies the call policy as a reputation-building mechanism rather than being only a signaling role, and suggests that the reputation rents resolve the discrepancies of the stock’s post-call price performance.
As for the IPO decisions and activities, this study performs another reputation model to analyze a firm’s reputation effects on IPO activities, especially on the decision to go public. The results yield that a firm’s reputation does affect its decision to go public. By listing equities publicly, firms with good management quality and a solid past would anticipate enhancing their reputations, and those with a poor past would anticipate building up good names. Furthermore, good reputation firms with bad management quality would anticipate maintaining their reputations by going public. On the other hand, it is found that good firms over-invest in building up their reputations and bad firms take advantage of their reputations to go public. Both result in firms’ over-going public and IPO mispricing. This constitutes an alternative interpretation on IPOs’ long-run underperformance and the sharp decline of the survival rate.
As for the corporate financing policies, the other reputation model is constructed by taking both determinants, the costs of financial distress as well as the firm’s reputation into consideration. The results show that good management quality firms with good reputations enjoy their financial flexibility between debt and equity. Bad management quality firms take advantage of their good names to issue equities, which leads to over investment. Good management firms lose their financial accesses due to bad reputations, which lead to under investment. Reputations would screen the bad management quality firms with bad reputations off the market.
This dissertation concludes that reputations indeed affect the three selected corporate financial decisions and suggests further plow on more corporate finance issues.
目次 Table of Contents
1. Introduction 1
2. Literature Review
2.1 Reputation 5
2.2 Convertible Bond Call Policies 9
2.3 IPO 10
2.4 Corporate Financing Policies 12
3. Reputation Effects on Convertible Bond Call Policies
3.1 The Model 17
3.2 Equilibria of the Convertible Bond Calling Game 23
3.3 Main Reputation Effects and Empirical Evidence 28
3.4 Conclusion of Chapter 3 31
4. Reputation Effects on IPO Activities
4.1 The Model 32
4.2 Equilibria of the Going-Public Decision 36
4.3 Main Reputation Effects and Empirical Evidence 41
4.4 Over-Going Public, IPO Mispricing, and Long-Run Underperformance 43
4.5 Conclusion of Chapter 4 47
5. Reputation Effects on Corporate Financing Policies
5.1 The Model 49
5.2 Equilibria of the Corporate Financing Policies 54
5.3 Main Reputation Effects and Empirical Evidence 57
5.4 Conclusion of Chapter 5 60
6.1 Contribution to the Literature 62
6.2 Extensions 65
Figure 1.1 Diagram of the research structure 4
Figure 3.1 Time line of the call-conversion game 17
Figure 3.2 The call-conversion game 19
Figure 4.1 Time line of the IPO model 33
Figure 5.1 Time line of the Corporate Financing Model 49
Table 3.1 Notation of the Calling-Conversion Model 22
Table 4.1 Notation of the IPO Model 36
Table 4.2 Probability Matrix of Going Public as a Function of a Firm’s Quality and Its Reputation 40
Table 5.1 Notation of the Corporate Financing Model 53
Table 5.2 Decision Matrix of Financing and Investing 57
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論文使用權限 Thesis access permission：校內外都一年後公開 withheld
校內 Campus：開放下載的時間 available 2009-01-30
校外 Off-campus：開放下載的時間 available 2009-01-30