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My dissertation discusses frontier issues in empirical finance and extend the boundary of knowledge in corporate finance and debt markets. The first essay investigates the effect of gubernatorial and state legislative term limits on municipal bond yields. States adopted term limits to reduce wasteful government spending and control governmental agency costs. However, the literature documents that both term limits are positively associated with government spending which leads to volatility in state fiscal policies. I argue that this fiscal volatility increases the risk of municipal debt and should be associated with higher yields. I find that municipal bonds issued from states with term limits have significantly higher yields. My study contributes to the literature by documenting the role of state political structure in municipal borrowing costs. The second essay sheds light on how county-level religiosity affects credit risk, credit enhancement choice, and yield spreads of municipal bonds issued from the county. To the extent that county-level religiosity is reflected in firm’s corporate culture and its behavior, we expect that religiosity will have an impact on credit risk via the risk-taking behavior of municipal bond issuers in the county. My findings indicate that bonds issued from counties with higher levels of religiosity have better credit ratings and lower yield spreads. Furthermore, I find that bond issuers from counties with higher levels of religiosity are less likely to purchase credit enhancement. The third essay examines the impact of Sarbanes-Oxley Act of 2002 (SOX) on capital structure choice and corporate performance variability. Capital structure literature notes that firms use debt financing to reduce agency conflicts. To the extent that SOX restricts managerial excesses and improves corporate governance, SOX will be negatively associated with leverage. I find evidence that firms deleveraged significantly, post-SOX. The literature suggests that larger group decision-making and effective monitoring can discourage risk-taking by managers, and prior studies show that SOX leads to larger and more independent directors and discourages managerial risk-taking. Consequently, I hypothesize that corporate performance will be less variable post-SOX. My results indicate that SOX significantly reduced corporate performance variability. Furthermore, I show that the effect of SOX on leverage and corporate performance variability is more pronounced in firms that were previously not compliant with SOX.

ETD_8209

Ph.D.

Includes bibliographical references

by Alex Abakah

doi:10.7282/T3H134ZF

ETD doctoral

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