Abstract
This dissertation studies the topics on firms' financial policy and investment policy and focuses on Taiwan’s publicly listed firms and unlisted firms. The first chapter aims to empirical study how the firms finance over the business cycles, and the second chapter attempts to explore the impact of stock market listing on firms’ investment policy. In the first chapter, our study is motivated by the finding in recent literature that expansion and contraction of “credit” (or debt) has played an important role in the genesis and severity of many business cycles, e.g., Koo (2009) and Jordà et al. (2013, 2015). However, among the studies regarding firm financing behavior over business cycles, no consensus has been reached on both theoretical and empirical fronts. In this chapter, we employ data on Taiwan’s 2838 publicly listed firms and 1289 unlisted firms over the 1986-2014 period to study the patterns of firm debt finance, equity finance and leverage ratio. Through our panel regressions of changes in firms’ debt and equity on firms’ sales, internal cash flow, tangibility of assets, and cyclical macro variables, we reach the following observations: (1) firms’ debt financing exhibits clear pro-cyclical pattern for both listed and unlisted firms while equity financing exhibits clear pro-cyclical pattern for unlisted firms but not listed firms, (2) the pro-cyclicality of debt financing is more prominent for medium to large-sized firms while the pro-cyclicality of equity financing is more prominent for small to medium-sized unlisted firms, and (3) younger firms and firms with lower leverage tend to exhibit stronger pro-cyclical pattern in equity financing but less pro-cyclical pattern in debt financing. As smaller-sized unlisted firms are usually with young age and with a lower leverage ratio and larger sized firms are usually more mature and with higher leverage, our above findings are consistent with each other and with the prediction of Berger and Udell (1998)’s “financial growth cycle theory of business”. In the second chapter, our study investigates how firms’ investment decisions are affected by stock market listing. On the one hand, low-cost capital obtained from the stock markets can relieve a firm financial constraints and induce listed firms to pursue investment activities, but on the other hand, stock market pressures induce listed firms to invest myopically. To help disentangle aforementioned opposing possibilities, we focus on R&D investment and employ a sample of listed and unlisted Taiwan firms over the period 1986-2014 to examine whether the difference between the investment behaviors of listed and unlisted firms are a direct result of their difference in market-listing status. Our empirical results show that the impact of a firm’s listing status on its R&D expenditures depends on its internal capital. The sensitivity of R&D investment to investment opportunities is higher in unlisted firms with large internal capital compared to listed firms with similar internal capital characteristics, while the difference between the R&D investment sensitivities to investment opportunities in listed and unlisted firms with small internal capital are insignificant. These findings suggest that due to the sufficient internal capital and the lack of stock market pressure, unlisted firms are better positioned for taking advantage of investment opportunities than listed firms.