Agency Conflicts within Corporations

Abstract

This thesis consists of three empirical studies that explore the various facets by which agency conflicts can influence corporate operations and decisions and by extension, firm performance. In our first study, we examine whether late payment to trade creditors is prevalent among corporations in the US. We find that a lack of liquidity and corporate strategic intention are the key drivers of late payments to trade creditors. Large firms intentionally “squeeze suppliers” by taking advantage of market power whereas liquidity shortage is the main cause of slow payments in small firms. Secondly, we show that overleverage is an effective signal of corporate strategic default incentives. Lastly, we investigate the effect of corporate governance on security issuance decisions among US public companies and the use of those proceeds. We find that well-governed firms tend to issue debt rather than equity. In addition, well-governed firms are likely to avoid M&A investments after both equity and debt issuances and pay more dividends after debt issuances. We also find that discretionary cash holdings are not strongly influenced by the joint effect of security issuance and corporate governance. The empirical evidence in this thesis contributes to the importance of the enhancements and possible amendments of policies and regulations and the need for strong corporate governance mechanisms.