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Two Essays on Media Connections and Corporate Finance Policies TWO ESSAYS ON MEDIA CONNECTIONS AND CORPORATE FINANCE POLICIES by Md Miran Hossain A Dissertation Submitted to the Faculty of College of Business In Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Florida Atlantic University Boca Raton, FL August, 2018 Copyright 2018 by Md Miran Hossain ii ACKNOWLEDGEMENTS I am highly grateful to my dissertation chair Dr. David Javakhadze for his supervision throughout the doctoral program. He has persistently encouraged me to work on high quality research projects. I feel blessed to have such an extraordinary scholar as my supervisor, mentor, instructor, and role model. Without his guidance and help this dissertation would not have been possible. I would also like to thank Dr. Luis Garcia- Feijoo for his invaluable advice and direction. His feedbacks were instrumental in shaping my dissertation. Besides, I have learnt a lot from his courses and I thank him for his outstanding leadership in the finance PhD program. I am thankful to my other committee member, Dr. Daniel Gropper, for his advice and encouragement. I greatly appreciate his time despite his extremely busy schedule. My sincere appreciation goes to the other faculty members of the finance department. I am thankful to Dr. Anna Agapova for her investments seminar class and collaboration in multiple research projects. Working with her has broadened my research agenda. I would like to thank Dr. Anita Pennathur for her capital markets seminar as her course furthered my understanding of research on financial markets. I am also grateful to Dr. Zarruk, Dr. Cole and other professors for creating a supportive environment in the department. I also thank my fellow Ph.D. colleagues for their support. Your love and laughter have kept me entertained and encouraged. iv I must express my gratitude to all my professors at North South University, Colorado State University and Florida Atlantic University. Their relentless effort has inspired me to pursue a career in the academia. v ABSTRACT Author: Md Miran Hossain Title: Two Essays on Media Connections and Corporate Finance Policies Institution: Florida Atlantic University Dissertation Chair: Dr. David Javakhadze Degree: Doctor of Philosophy Year: 2018 The study examines the effects of executives’ media connection on corporate policies. Extant literature in finance, economics and journalism provide inconclusive evidence in determining whether media works as watchdog to the financial market or whether media facilitates bias through manipulation of corporate news events. I introduce two competing hypotheses that may explain the research question. Information Efficiency Hypothesis predicts that media connected firms mitigate information asymmetry among its investors, enjoy better governance, and are less likely to manipulate information on corporate policy choices. Manipulation Hypothesis, in contrary, suggests that firms may strategically utilize media connections to alter the information flow that may paint a tainted picture of the firm’s prospects, thereby facilitating greater misvaluation and devising of opportunistic corporate finance policies. I test these hypotheses on a set of investment policies (mergers outcomes and innovative efficiency) and financing policies (seasoned equity offerings and share repurchases). vi In the first essay, I find that media connection increases merger announcement return, reduces takeover premium, increases the likelihood of deal completion, although post-merger long term performance exhibit inconclusive results. Also, media connection reduces innovative efficiency and change in innovative efficiency attributable to media connections is harmful for the firm in the long run. Overall, results are consistent with the manipulation hypothesis to some extent though further investigation is required before disregarding the information efficiency effect. In the second essay, results show that media connection increases the likelihood of an SEO event, reduces the announcement period CAR. However, analysis of post SEO long term operating and stock performance show mixed results. For repurchasing firms, media connection increases announcement returns, increases the likelihood of repurchase and the amount repurchased. Media connection also increases the likelihood that repurchase is preferred over dividends as a mode of payout. Post repurchase long term operating and stock performance, however, provide inconsistent results. In general, results are consistent with the manipulation hypothesis though information efficiency hypothesis could not be ruled out entirely. vii DEDICATION I dedicate my dissertation to my beloved parents, Md Monir Hossain and Atia Begum, for their unconditional love and support; and my dear wife, Ayrina Najib, for her sacrifices and giving me encouragement during the challenging days of PhD life. I am blessed to have them in my life. TWO ESSAYS ON MEDIA CONNECTIONS AND CORPORATE FINANCE POLICIES List of Tables ................................................................................................................... xiii Chapter I: Introduction ........................................................................................................ 1 Chapter II: Background and Primary Hypothese .............................................................. 14 1. Media, Financial Market and Corporate Finance ................................................... 14 1.1. Media Disseminates Information .................................................................... 14 1.2. Media Facilitates Investor Attention ............................................................... 16 1.3. Media Ensures Monitoring ............................................................................. 17 1.4. Media Breeds Bias .......................................................................................... 19 2. Social Capital and Its Conduits .............................................................................. 23 2.1. Information Flow ............................................................................................ 24 2.2. Contract Enforcement ..................................................................................... 26 2.3. Trust ................................................................................................................ 27 3. Primary Hypotheses ............................................................................................... 28 Chapter III: Media Connection and Corporate Investment Policies ................................. 31 1. Introduction ............................................................................................................ 31 2. Literature Review ................................................................................................... 37 2.1. Review of Merger and Acquisition Literature ................................................ 37 2.1.1. Merger Announcement Return and Takeover Premium ........................... 37 2.1.2. Price Manipulation Prior to Merger announcement .................................. 39 ix 2.1.3. Effect of Social Ties in M&A ................................................................... 40 2.2. Review of Innovation Literature ..................................................................... 41 2.2.1. Determinants of Innovation ...................................................................... 41 2.2.2. Disclosure of Innovation Activities .......................................................... 43 3. Hypothesis Development ....................................................................................... 45 3.1. Media Connection and M&A.......................................................................... 45 3.1.1. Moderating Effect of Political Connection ............................................... 50 3.1.2. Stock Deals ............................................................................................... 51 3.1.3. Moderating Effect of Firm Recognition ................................................... 52 3.1.4. Geographic Proximity to Large Metropolitan Area .................................. 52 3.2. Media Connection and Innovation .................................................................. 53 4. Data and Methodology ........................................................................................... 56 4.1. Media Connections Measure........................................................................... 56 4.2. Data and Sample Selection ............................................................................. 57 4.3. M&A Measures and Control Variables .......................................................... 58 4.4. Innovative Efficiency Measures and Control Variables ................................. 60 5. Empirical Results ................................................................................................... 61 5.1. Mergers and Acquisitions ............................................................................... 61 5.1.1. Merger Announcement Returns ................................................................ 62 5.1.2. Merger Takeover Premium ....................................................................... 63 5.1.3. Post-Merger Long Term Performance ...................................................... 64 5.1.4. Effect of Political Connections ................................................................. 65 5.1.5. Stock Deals, Acquirer Recognition and Geographic Proximity ............... 66 x 5.1.6.
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