Three essays in corporate financ

This dissertation consists of three distinct but related essays examining corporate finance issues in two main areas. One examines the relationship between politics, broadly speaking, and firms' investment and financing decisions. The other is behavioral in nature and relates to the heterogeneity of managerial characteristics and their impact on managerial decision-making and the outcomes of these decisions.;Chapter 1 provides original evidence from institutional investors that political uncertainty during presidential elections greatly affects investment. Using U.S. institutional ownership data from 1981 to 2010, I find that institutions significantly reduce their holdings of common stock by 0.76 to 2.1 percentage points during election years. More specifically, institutions tend to sell large proportions of their positions when Republicans win presidential elections and then keep their positions at below-average levels through the first year of the new administration. Conversely, when Democrats win presidential elections, institutions tend to keep their positions at above-average levels for the first year of the new administration. The difference in ownership rises to 2.4% by the end of the first year of new administration. Changes in institutional ownership in election years are sensitive to the uncertainty of the outcome. The results also show that institutions benefit from these holding strategies during the pre-election periods.;Chapter 2 provides direct evidence that managerial style is a key determinant of the firm's cost of capital, in the context of private debt contracting. Applying the novel empirical method by Abowd, Karmarz, and Margolis (1999) to a large sample that tracks job movement of top managers, I find that managerial style is a critical factor that explains a large part of the variation in loan contract terms. The loan-term-related managerial styles correlate with managerial styles of firm performance and corporate decisions, implying that certain managers achieve better firm performance via lower cost of capital and other desirable non-price loan terms. I further find direct evidence that banks "follow" managers' job changes and offer loan contracts with preferential terms to their new firms. Some of the preferred managerial styles reflect managers' personal characteristics, such as managerial ability, authority and conservatism.;Chapter 3 looks at whether and how political uncertainty influences the cost of debt with bank loan information. With continuous measurement of the political environment, I find that political uncertainty imposes additional cost and stringent non-price terms on the loan contract at both aggregate and firm level. Firms with larger idiosyncratic political exposure have loan contract with higher spreads, more stringent collateral requirements and shorter maturities. Economically, a one percentage increase in the aggregate political uncertainty is associated with 9.145 basis points higher spread market wise. At firm level, a one standard deviation increase in a firm's idiosyncratic political exposure is related to around 10 basis points (or 5%) of additional spread. On the supply side, lenders with larger political exposure also request higher loan spread and more stringent non-price terms.