PhD Oral Exam - Saman Ronagh, Business Administration

When studying for a doctoral degree (PhD), candidates submit a thesis that provides a critical review of the current state of knowledge of the thesis subject as well as the student’s own contributions to the subject. The distinguishing criterion of doctoral graduate research is a significant and original contribution to knowledge.

Once accepted, the candidate presents the thesis orally. This oral exam is open to the public.

Abstract

This thesis examines three topics in ownership structure. The first essay examines the relationship between ownership and leverage. The second essay investigates the timing and determinants of investment in organization capital, and how the ownership structure influences such investments. The third essay explores the prevalence and importance of voting and non-voting convertible preferred equity and investigates the impact of such voting rights on firm value.

In the first essay, we document a convex relationship between leverage and ownership of a firm’s largest individual blockholder. This convex influence of ownership on leverage is largely driven by the bankruptcy risk. Ownership has a concave impact on leverage through the threat of the market for corporate control and blockholder’s empire building desires. Further, we show that the ownership-leverage relationship differs depending on the blockholder’s identity (from a convex one for family firms to a concave one for non-family insider firms). Our results are robust to controlling for the endogeneity of ownership and alternative definitions of leverage.

In the second essay, we investigate the timing and determinants of investment in organization capital (OC). Using a comprehensive sample of U.S. IPOs, we document a significant decline in the investment in OC after going public. This decline is positively related to the dilution of the largest individual blockholders (a proxy for change in agency problems) and negatively related to IPO offer size (a proxy for access to capital). We further postulate that the presence of individual blockholders and venture capitalists affect such investments. We find that OC investment is positively related to family ownership and negatively related to venture capitalist presence, possibly because of their different investment horizon. These results are robust to endogeneity concerns and different measures of investment in OC.

In the third essay, we examine the prevalence and importance of voting and non-voting convertible preferred equity (CPE) in a comprehensive sample of US firms and find that around a half of CPE is voting and around seven percent have additional board election rights. In firms with voting convertible preferred equity, holders of such shares control, on average, around 20% of votes (both on general corporate matters and on board elections). In firms with additional board control rights, CPE holders can elect more than a third of the board. We find that corporate entities are by far the most numerous and important holders of convertible preferred equity. They also are the main drivers of the negative relationship we document between the voting rights of CPE holders and firm value, especially in firms with no individual blockholders.