Essays in Corporate Finance and Behavioral Finance

Abstract

This thesis consists of three empirical studies on social interactions from corporate finance and behavioral finance perspectives. The first study investigates the role of social media around seasoned equity offerings (SEOs). Firms undergoing seasoned equity offerings (SEOs) receive more favorable messages on the financial social media platform, StockTwits. Overall, our findings are consistent with the rumor-spreading hypothesis developed by Van Bommel (2003), and we empirically test and show that alternative explanations, including irrational exuberance, investor attention, and traditional media management, cannot fully explain our results. The second study explores how firm Environmental, Social, and Governance (ESG) performance affects the managerial and analyst tones in quarterly earnings conference calls and its incremental effect on post-earnings call returns. We find that high ESG firms exhibit a more optimistic management tone after controlling for quarterly financial performance metrics. Tone difference in conference calls between managers and analysts predicts negative abnormal returns in the three-day window around the call. In the 60-day post-call period, low ESG firms exhibit return reversals related to tone difference, but high ESG firms show neither drift nor reversal. These results are consistent with improved price efficiency in firms with substantial investment in ESG. The third study examines the relationship between geographic dispersion and local return comovement based on firm headquarters. Using the number of different states mentioned in 10-K filings as a proxy for the geographic dispersion of a firm, we show that concentrated firms exhibit greater comovement with firms headquartered in the same region than dispersed firms. We argue that comovement is exacerbated in concentrated firms as investors are more likely to segment these firms based on categories such as headquarters’ locations.