Essays in corporate finance

This dissertation consists of two essays. The first essay investigates the effects of hedge fund activism on the wealth of bondholders in an effort to shed light on whether activism alleviates or aggravates agency problems. We find that, on average, bondholders experience positive and significant abnormal returns around the announcement of activism. However, investment grade bonds lose value, while non-investment grade bonds gain value. Moreover, the gain to bondholders is a function of the hedge fund activity as well as the corporate governance of the firm. We also find that bond ratings are likely to be downgraded rather than upgraded one year after the announcement of activism. In addition, we find that the short run positive abnormal bond returns disappear in the long run. The results suggest that hedge fund activism does not have a value-enhancing role to bondholders in the long run.;The second essay examines whether the connections/network of board of directors play a role in the pricing and the returns to shareholders during mergers and acquisitions (M&As). We ask whether members of a network could impact directors' decision-making. Specifically, we inquired whether firms' decisions are affected by how well connected the firms' directors are. One the one hand, connections facilitate transfer of information. On the other hand, due to favoritism, connections may lead to inefficient decision making. Using social network measures to proxy for the connections of firms' directors, we show that the bid premium is statistically smaller if the target board is connected. Also, the abnormal returns to target shareholders are smaller when the board is connected. Both of these results provide evidence that connected board members in target firms are detrimental to shareholders during M&As. Moreover, our results provide evidence that acquirer board connections result in larger acquirer returns and larger bid premiums.