Essays in empirical finance

This dissertation presents three essays:; 1. The impact of debt issuance on market-wide yield spreads . In a study of the European telecom bond market, we find empirical evidence that a firm's new issue of bonds can temporarily inflate the yield spreads of bonds of other firms in its sector. The effect does not appear to be related to the revelation of new information to investors. A bond's yield-spread reaction to new issuances of other firms is increasing in that bond's default risk and decreasing in its liquidity. Our results imply that a 15.3 billion Euro issue by Deutsche Telekom temporarily reduced the market value of the roughly 118 billion Euros in outstanding European telecom debt by 0.12%, or 137 million Euros.; 2. Insider trading, firm returns, and the time dynamics of earnings management. We find empirical evidence that both accruals and discretionary accruals are negatively autocorrelated. On the basis of this analysis, we hypothesize that the longer a firm exhibits abnormally high measures of earnings management, as measured by discretionary accruals from the modified Jones model, the less informative that firm's reported earnings will be. Insider trading patterns and the patterns of ex-post equity returns support this hypothesis. Moreover, these results suggest that single periods of abnormally high levels of earnings management may indicate new, positive information about future cash flows.; 3. On capital structure, credit risk, and market timing . I examine the sensitivity of the maturity of new debt issues to Treasury yields and corporate-bond yield spreads. For investment-grade firms, maturity is decreasing in the real short-term Treasury yield, the slope of the Treasury yield curve, and the level and slope of the term structure of yield spreads. The sensitivity of new-issue maturity to these factors is decreasing in the credit risk of the issuing firm. The issuances of high-yield firms do not appear to respond to market conditions in this manner. These findings are consistent with investment-grade firms selecting the maturity of new debt offerings in an attempt to time market conditions.