Essays on Finance and Risk

YIN, Shiyan (2024) Essays on Finance and Risk. PhD thesis, University of Nottingham.

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This thesis consists of three essays on corporate finance, with a focus on corporate governance in both the US and Chinese markets. The causal effect of reduced disclosure levels on the risk of default in the US market from 2008 to 2019 is examined in the first topic using regression discontinuity (RD) designs as the main identification strategy and the rule of Smaller Reporting Company Regulatory Relief and Simplification as the exogenous source of variation. The results indicate that smaller reporting companies, which are permitted to provide scaled disclosure in their 10-Ks, experience significantly and economically higher default risk. I demonstrate that the effect of information loss due to reduced disclosure levels dominates the effect of loss of commitment to mandatory disclosure and that, compared to previously qualified smaller reporting companies, newly qualified smaller reporting companies face steeper increases in bankruptcy risk during their first year of eligibility. The analyses also indicate that strong external oversight mechanisms, better corporate governance, and credible audit quality tend to alleviate the negative impact of reduced disclosure levels on the risk of default. The results are robust under alternative model specifications, regression discontinuity design assumptions and measures of default risk.

Using the book-tax gap not attributable to accounting accruals as the measure of tax avoidance, the impact of corporate culture on the tendency of companies to avoid tax from tax authorities in the US market is empirically examined in the second topic. Following the “Competing Values Framework”, corporate culture is classified into four culture dimensions: collaborate, control, create and compete, and quantified by examining 10-Ks using text analysis. The results indicate that companies with a collaboration- and competition-oriented culture have a tendency to avoid more tax, while those with a control-oriented culture tend to avoid less.

The results also indicate that the impact of a collaboration- and competition- oriented culture on tax avoidance is mitigated when the measure of high-powered incentives is taken into consideration. This indicates that reducing the agency problem weakens the links between cultures and tax avoidance. The results are also robust to alternative measures of tax avoidance and different model specifications.

The third chapter investigates the effects of monitoring and advisory roles of friendly boards on CEO compensation under the Chinese context. The robust findings reveal that friendly boards weaken monitoring efficiency, thus attenuating a positive link between CEO compensation and firm performance. However, friendly boards better perform advisory duties, thus weakening a negative link between CEO compensation and R&D expenditure. Most importantly, the results show that friendly boards increase firms’ R&D investment by alleviating CEO compensation risk, and also enhance innovation efficiency by strengthening a positive link between the number of patents and R&D investments. It is worth noting that although the empirical analyses have uncovered the beneficial side of friendly boards, it does not contradict to earlier studies which state that independent boards are good for firms. The extended analyses in this study show that while there is an absent link between firm value and friendly boards in general, friendly boards still increase firm value by serving their advisory functions on R&D projects.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Chevapatrakul, Thanaset
Huang, Rong
Keywords: corporate finance, corporate governance, United States, China
Subjects: D History - General and Old World > DS Asia
E History - America > E151 United States (General)
H Social sciences > HG Finance
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 72385
Depositing User: YIN, Shiyan
Date Deposited: 20 Mar 2024 14:00
Last Modified: 20 Mar 2024 14:00

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