Three Essays on Applied Microeconomics and Corporate Strategy
This dissertation focuses on applied microeconomics and corporate strategy.Chapter 1 represents one of the first studies of indicative bidding, a commonly used procedure in the sales of complicated assets with substantial values. A parsimonious model captures the essence of the indicative bidding: first, there is a screen stage in which the bidders are asked to submit nonbinding preliminary indications of interest; second, only a subset of the potential bidders is select by the auctioneer; third, each entrant bidder must incur a substantial cost in order to bid; and finally, value updating and competitive information effects can be quite substantial during the second stage. I show that a symmetric increasing equilibrium exists for indicative bidding, thus it is guaranteed that the most qualified bidders. Given the widespread practice of indicative bidding and the substantial value transaction involved, this theoretical justification is quite stimulating.In Chapter 2, motivated by the strong evidence of entry behavior in corporate takeover practice, I model a two-stage auction procedure with endogenous entry, value updating, entry cost, and uncertain number of actual bidders. I show that within a more realistic (common) value updating paradigm, as the number of potential bidders increases, the optimal bidding strategy is not monotonic; and the seller's expected revenue and the expected total welfare is not monotonic. The results lay out a general structural framework to test empirically the optimality of auction mechanism design.Since a number of high-profile corporate collapses and scandals have induced new governance regulations by the U.S. Congress and the U.S. Securities and Exchange Commission, In Chapter 3, I examine the public firms' performance before and after the imposing of the new regulations. In a difference-in-differences panel regression model, I take into account firm-level characteristics, industrial business cycle and sample attrition. I find that the new regulations are associated with higher firm value. This strong evidence is important regarding the ongoing debate about the future of the Public Accounting Reform and Investor Protect Act in particular, and enhances the understanding of corporate governance in general.
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