This thesis examines corporate decisions under the legal and environmental dimension of the PESTLE model using two exogenous shocks. First, using a regulatory intervention, I examine the corporate borrowing decision among firms having constrained access to internal capital under the legal dimension of the model. Second, using extreme rainfall conditions, I examine the corporate investment decisions among rain-sensitive firms under the environmental dimension of the model. To answer the research question as to whether increased creditor rights on corporate borrowing depend on the firm's access to internal capital, I use the creditor protection reform in India as an exogenous regulatory shock. Under this empirical setting, results indicate that strengthening of creditor rights leads to increased corporate borrowing among firms that have constrained access to internal capital compared to those firms having relatively easier access to internal capital. Further, the increased corporate borrowing by firms with constrained access to internal capital, in the post-reform period, is associated with a greater expansion of real investments, improved operational performance, and better market valuation. My findings indicate that, following creditor reforms, firms having constrained access to internal capital decide to borrow more. A version of this empirical study is now published in the Journal of Corporate Finance. Next, using Indian monsoon data, I study whether firms in the rain-sensitive sectors differentially time their investments to generate value in response to diverse abnormal rainfall conditions. I find that rain-sensitive firms suffer a significant decline in their market values in the immediate aftermath of extreme rainfall conditions. Consistent with the investment timing economic argument, my results show that the follow-up investment response by rain-sensitive firms depends on the nature of extreme rainfall conditions. While rain-sensitive firms increase their investments following excess rainfall conditions, the affected firms shrink investments in the aftermath of deficit rainfall periods. However, in terms of market-based value implications, all rain-sensitive firms regain their lost market values following both the investment strategies. In all, my findings indicate that corporate investment decision to invest or not invest is dependent on the heterogeneity of exogenous conditions and such decisions when timed well are value relevant. A version of this empirical study has now received a 'minor revise and resubmit' by the Journal of Corporate Finance. Overall, through the findings of my thesis, it can be concluded that corporate borrowing and investment decisions among firms are subject to the heterogeneity of both firm characteristics and exogenous events.
|Date of Award||1 Oct 2020|
- University Of Strathclyde
|Sponsors||University of Strathclyde|
|Supervisor||Chandra Thapa (Supervisor) & Devraj Basu (Supervisor)|