Essays in corporate finance (Colombia, Mexico)

The first chapter tests the hypothesis that bidders in stock-for-stock acquisitions manipulate earnings more aggressively around merger transactions than otherwise similar firms. Using data on 449 merger bids between 1989 and 2000, we fmd that stock acquirers' accruals---and especially the discretionary component---are abnormally high before announcing merger bids, while cash acquirers' are not. Incentives for earnings management around stock-for-stock acquisitions are stronger for relatively undervalued firms, cash constrained acquirers, and firms that receive less attentive market supervision. Finally, we find that pre-merger earnings manipulation predicts post-merger underperformance. Chapter 2 measures the impact of crime on firm investment by exploiting variation in kidnappings in Colombia from 1996 to 2002. Our central result is that firms invest less when kidnappings target firms. We also find that aggregate crime rates---homicides, guerrilla attacks, and general kidnappings---have no significant effect on investment. This finding alleviates concerns that our main result may be driven by unobserved variables that explain both overall criminal activity and investment. Furthermore, kidnappings that target firms reduce not only the investment of firms that sell in local markets, but also the investment of firms that sell in foreign markets. Our results are consistent with the hypothesis that managers are reluctant to invest when their freedom and life are at risk. Chapter 3 uses an unbalanced panel of 189 Mexican public firms between 1989 and 2000 to show that firms that issue ADRs report lower investment-cash flow sensitivity than firms that do not cross-list. Contrary to previous studies, this paper does not assume that the cross-listing decision is exogenous, but rather instruments it. The results are also robust to matching the ADR sample with control samples, which alleviates selection concerns. Finally, I document that firms with ADRs report significantly less bank debt and more public debt as a fraction of assets. These findings are consistent with previous studies that find that ADRs reduce the cost of capital and relax capital constraints.