Three essays on corporate finance and market microstructure

Abstract

The first and second chapters of this dissertation study the relationship between private benefits of control and the corporate policy. In particular, the first chapter analyzes the effect of private benefits of the controlling party on the leverage decision. The second chapter examines the effect of private benefits of control on the dividend adjustment decision and on the market reactions to the dividend adjustment announcements. The third chapter investigates the trading cost of the Korea Stock Exchange. In chapter 1, I find that the private benefits of the controlling party have a negative impact on the debt ratio of a firm. The controlling parties with large private benefits want to avoid monitoring and disciplining effect of debt obligations. The negative relationship is concentrated in the post-crisis period and the reverse relationship is found for chaebol affiliated firms in the pre-crisis period. It seems to be caused by the fact that the monitoring role of debt is stronger in the post-crisis period than in the pre-crisis period and cross-debt guarantee and related lending practice allow chaebol affiliated firms to abuse debt in the pre-crisis period. Furthermore, it is found that the incentive schemes of ownership structure affect the relationship between the private benefits of control and the leverage. Low cash flow right instigates the negative relationship and low control right gives the controlling party incentive to inflate voting power by increasing debt. Chapter 2 studies the effect of private benefits of control on the dividend adjustment decision and the market reactions to the dividend adjustment announcements. Results show that a firm has an increasing tendency to raise dividend payout as private benefits of control increase. Especially for firms with large divergent ownership structure and high growth opportunities, the relationship is evident. By increasing dividend payout, firms attempt to earn a good reputation that they are not...