Dissertations, Theses, and Capstone Projects

Date of Degree

5-2018

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Linda Allen

Committee Members

Wim Vijverberg

Thom Thurston

Subject Categories

Corporate Finance | Finance

Keywords

relationship banking, organization capital, information asymmetries

Abstract

This dissertation consists of two chapters.

Chapter 1: The Effect of Relationship Banking on Firm Efficiency

This paper analyzes the impact of relationship bank oversight on firm operational efficiency and default risk. I find that a new loan from a relationship bank improves the technical efficiency of inefficient firms that have an elevated probability of default. Moreover, borrowing firms with elevated default risk exposure experience reductions in their probabilities of default in the years following new relationship bank loans, benefiting both banks and borrowers. Thus, the benefits of relationship bank monitoring are most apparent the higher the ex ante default risk and the lower the baseline efficiency of the borrower.

Chapter 2: The Intangible Value of Key Talent: Decomposing Organization Capital

Specialized firm-specific information, strategies, activities and procedures, identified as organization capital (OC), is comprised of a heterogeneous group of disparate items. We isolate firm value creation by decomposing OC into two endogenously determined components: (1) key talent comprised of disclosed compensation of top executives which creates value and (2) a residual comprised of undisclosed executive perquisites versus agency costs and empire building expenses that do not increase firm value. Whereas the first component is portable, the second is unobservable, and therefore generates rents for shareholders. Thus, only residual OC creates systematic risk exposure, whereas key talent engenders idiosyncratic risk. Furthermore, we find that systematic risk exposure is higher for firms with weak governance.

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