Two Essays on Corporate Investment Decision

• Main Authors: Po-Hsin Ho, 何柏欣
• Other Authors: Keng-Yu Ho
• Format: Others
• Language: en_US
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/20071039714780149979

博士 === 國立臺灣大學 === 財務金融學研究所 === 99 === This dissertation contains two essays on corporate investment decision. Essay 1: CEO Overconfidence and the Long-Term Performance Following R&D Increases In this essay, we set out in this study to examine the relationship between the CEO overconfidence and significant increases in research and development (R&D) expenditure. Although the prior studies reveal a significantly positive market reaction to both short- and long-run following the increases in R&D expenditure, our empirical results indicate that long-run stock performance is found to be positive only for those firms whose CEOs are not overconfident. We also provide evidence to show that an unexpected increase in R&D expenditure is an investment decision which is again only beneficial for firms whose CEOs do not exhibit overconfidence. Our findings, which may be attributable to both overinvestment and the overestimation of future cash flows, indicate that overconfident behavior often leads to the pursuit of value-destroying R&D investment projects. Essay 2: The Change of Corporate Governance Mechanism Following Bad Acquisitions In this essay, we investigate the changes in corporate governance mechanism following bad acquisitions. A merger is defined as a bad acquisition if the share price declines significantly around the merger announcement date. Numerous research indicates that weak corporate governance lead to lower merger announcement effect. We examine firms'' response following bad acquisition from the dynamic perspective and estimate the long-run performance associated with the change of the governance variables. Our results suggest that after bad acquisition, firms'' corporate governance structure indeed change, especially for the increase in the independent directors, board independence, and independent audit committee members. Our evidence indicates that firm would improve the weak governance structure to restore the trust of shareholders and investors. Our results also show that the post-merger long-run abnormal performance associated with the increasing of number of directors, independent directors, and the number of directors in audit committee mechanism is significantly positive, but the abnormal operating performance are not related to the changes in governance variables. The results suggest that bad acquiring firms which improve their governance restore the trust from investors.