Essays in Empirical Corporate Finance

This dissertation explores the diverse effects of external shocks and interventions on corporate behavior, financial markets, and urban environments, offering new insights into firm strategies, governance dynamics, and urban policy outcomes. Through three empirical essays, it addresses key questions at the intersection of finance, corporate governance, and urban economics, utilizing robust data-driven approaches. Chapter 1 focuses on the role of hedge fund activism in transforming corporate governance by inducing changes in board composition and structure. examines how activist campaigns affect board structure and subsequent firm value. We document large-scale increases in board turnover following activist interventions, driven both by entries and exits. Turnover events are not priced by the market prior to activism but become valuable following engagements. Activists target underperforming board members, indicating a “weakest link” strategy rather than an attempt to enhance overall board skill sets. Consistent with this, activist-driven board turnover appears to not alter board diversity or aggregate board skills, and individual director characteristics explain only a minor fraction of the observed valuation effects. These results suggest that activism is valuable not because of who the board members are that are appointed or removed. We explore the origins of new director appointments and investigate the career trajectories of activist-appointed directors to understand the long-term impact of activist campaigns. Chapter 2 examines the urban and economic consequences of infrastructure development, focusing on the impact of metro station inaugurations on housing prices in Tehran. The opening of a new metro station, as a mode of the transportation corridor, potentially could have different effects on housing prices. We have investigated its effect on the value of residential properties around those stations, using data from large expansions of the metro network in Tehran, Iran. In the period of our study (April 2010 to December 2018), forty-five metro stations were inaugurated in Tehran. We use a difference-in-difference regression method to identify the causal effect of interest, where adjacent properties are used as the treatment group and similar but distant properties as the control group. The results indicate that, on average, the adjacent properties are affected by a 3.7 percent increase in price relative to distant properties. We also extend our study by categorizing new metro stations according to the extent of ex-ante access to other modes of public transportation such as bus rapid transit (BRT). We find 2 to 11 percent positive effect of new metro stations in regions with lower public transport, while in regions with ex-ante extensive public transportation system, we find less than 2 percent positive. Chapter 3 investigates the corporate and financial market responses to the Russia-Ukraine war, a geopolitical shock with far-reaching economic implications. Drawing on a dataset of 8,500 firms from 17 countries, the study analyzes how corporate reputation, as reflected in ESG performance and social exposure, shapes firms' operational decisions to withdraw, suspend, or continue their activities in Russia. Firms with stronger social ESG scores and greater public exposure are found to be more likely to withdraw, highlighting the importance of reputation management during crises. Additionally, event studies reveal significant stock market reactions, underscoring the role of shareholder pressure in influencing firm behavior. The findings contribute to the literature on corporate crisis management and demonstrate how reputational factors interact with financial considerations in shaping strategic responses to geopolitical events.