Three Essays on Finance, Culture and Investor Behavior
Simard, Andreanne Tremblay
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This dissertation consists of three essays that examine the effects of corporate culture and investor psychology on corporate decisions and financial markets. The first essay focuses on the role of corporate culture in acquisitions, whereas the last two essays investigate deviations from market efficiency. The first essay uses textual analysis of firms annual reports to develop an estimate of the differences in corporate cultures of the combining firms, and finds that greater cultural differences between the firms lead to higher synergistic gains, but only when the acquirer has a stronger culture than its target. The synergy gains concentrate among deals where the acquirers values are not antagonistic to the targets. Further analysis of profitability and productivity (measured as earnings per employee) around the acquisition transaction corroborates these findings. Overall, the evidence suggests that differences in corporate culture are an important driver of announcement returns in mergers and acquisitions. The second essay investigates whether stock misvaluation drives industry-level merger waves by examining intra-wave patterns in acquirers valuation levels in a sample of acquisitions during 1981-2010. The essay contrasts two types of merger waves: stock waves defined on pure stock acquisitions, and cash waves formed on pure cash offers. Consistent with the misvaluation hypothesis, the essay finds that the occurrence of stock merger waves is tightly associated with industry stock valuation, and bidder stock valuation is negatively associated with long-run abnormal returns, especially so during waves of stock mergers. In contrast, there is little evidence of such patterns using the cash wave definition. The third essay investigates the effects of sunshine, wind, rain, snow, and temperature on daily index returns of 49 countries from 1973 to 2012. The paper finds pervasive weather effects that vary across temperature regions (cold, hot, and mild) and months. A hedge strategy that exploits the return predictability of daily weather generates up to 25% (11.8%) annualized out-of-sample gross (net) profits during 1993-2012. The systematic patterns of weather effects together with the relationship between their strength and timing and individuals seasonal propensity to spend time outdoors, suggest a plausible mechanism through which weather-induced mood influences index returns.