Three essays in empirical corporate finance

Abstract

My thesis comprises three essays on corporate finance, focusing on analysts, short-sellers, and different creditors in the U.S. market. The first chapter investigates how measurement complexity, which captures aspects of information asymmetry and agency problems from an accounting perspective, affects analyst information production. Empirical results based on a novel accounting metering measure indicate that greater measurement complexity leads to higher forecast dispersion and lower forecast accuracy. The results are robust to alternative measures, clustering methods, sample selection, model specifications, and identification strategies, including difference-in-differences, a Bartik-style instrumental variable, and generalized method of moments analysis.
A plausible mechanism is talent screen channel, whereby skilled analysts strategically drop firms with high accounting metering intensity (AMI) based on cost-benefit considerations, resulting in weaker firm-level information production quality. Our findings support this channel. First, we show that skilled analysts—recognized for prompt information processing—can mitigate the adverse effects of AMI on the analyst information production quality. Second, high AMI discourages individual analysts from initiating or maintaining coverage, reducing the presence of skilled analysts at the firm level and ultimately leading to greater forecast errors and dispersion. Analysts also issue slower and less frequent forecasts for high-AMI firms, consistent with the notion that AMI increases information acquisition and processing costs for analysts. Furthermore, covering high-AMI firms is associated with greater career risks, including higher exit rates and lower performance ratings. After ruling out alternative explanations, we conclude that AMI imposes negative market consequences. Our findings provide new evidence on how accounting metering complexity influences analyst behavior and firm-level market performance.
The second essay investigates whether and how short-sellers influence corporate risk-taking behavior. The evidence shows that ex-ante short selling can unintentionally serve as an external governance mechanism, disciplining self-interested, risk-averse managers and leading to increased long-term risk-taking among U.S. firms from 2006 to 2017. The robustness of these findings is confirmed through consistent results across alternative dependent variables, varying data sampling frequencies, and causality checks using external shocks and instrumental variables. Cross-sectional tests indicate that the disciplinary effect of short sellers is stronger in firms with weaker corporate governance, greater financial constraints, and less incentivized managers. After ruling out alternative explanations, this chapter shows that the positive influence of short selling on corporate risk-taking is driven by investor attention attracted by short sellers, reinforcing the disciplinary role of the market’s invisible hand. Additional tests provide further empirical support for the beneficial effects of short selling on long-term corporate investment and profitability, offering valuable insights for fiscal policy and academic discourse.
In my third study, we used the staggered enactment of anti-recharacterization laws to examine the effect of imbalanced creditor rights on borrowing firms’ investment inefficiency. We find that Anti-recharacterization laws (ARLs) exacerbate investment inefficiency, and these results are robust to parallel trend tests, alternative investment efficiency measures, and various model specifications. These effects arise via two mechanisms: a protection-driven monitoring disincentive channel and a risk-driven credit tightening channel. The monitoring disincentive channel exacerbates inefficiency and overinvestment when manager–shareholder alignment is low. This suggests that securitization creditors under ARLs are less inclined to monitor firms, resulting in more severe investment inefficiency among poorly governed firms. The credit tightening channel heightens inefficiency and underinvestment in firms with high uncertainty and tight financial constraints. This indicates that non-securitization creditors under ARLs face greater financial pressures and thus impose tighter borrowing constraints, resulting in more severe investment inefficiency, particularly among higher-risk firms. Additional evidence shows that anti-recharacterization laws intensify creditor conflicts at the loan facility level, and their negative impact on investment efficiency is more pronounced among firms with low asset specificity, supporting our proposed channels. These findings highlight a potential adverse consequence of increased creditor protection.
Taken together, the essays provide novel insights into how information asymmetry affects financial markets and how key market participants shape corporate investment and decision-making.

Date of Award	20 Aug 2025
Original language	English
Awarding Institution	University of Nottingham
Supervisor	Xiaolan Zheng (Supervisor), Hang Zhou (Supervisor) & Donghui Li (Supervisor)