| In the first essay, “Stock Characteristics and Analyst Stock Recommendations”, I investigate analyst preferences for various stock characteristics and evaluate the sources of investment value provided by analyst stock recommendations. I find that analysts tend to favorably recommend stocks with high price and earnings momentum. Analysts also recommend stock with low book-to-market and high accruals. The results suggest that much of the value of analyst stock recommendations can be explained by the characteristics of the stock they recommend. The incremental value added by analyst recommendations is quite limited and short-lived. Also, trading strategies that select stocks based on their characteristics, dominate investments based on analyst recommendations.; The second essay, “Dual-class Stocks: Motivation and Effects on Firm Valuation, Corporate Governance, Capital Structure, and Payout Policy”, addresses several issues in dual-class stocks: why and when firms create dual-class stocks, and how the creation of dual-class stocks affects shareholders' wealth, corporate governance, capital structure, and payout policy. The results suggest that managers adopt the dual-class equity structure to raise additional outside equity capital without losing their control of the firms, rather than an antitakover measure. Adopting dual-class structure has a negative effect on shareholders' wealth that is observable only over a long horizon of time after the change. Dual-class firms tend to have board of directors that provide less effective monitoring roles for outside shareholders even before the change. They tend to keep the composition after the dual-class creation. The results suggest that over a long horizon of time, dual-class firms tend to use equity more than debt for their external capital source. No significant difference in dividend payout policy between dual-class firms and their industry and size matched firms is found. |
