Essay on the Persistence of Corporate Diversification Discount after Merger and Acquisition Transactions and Essay on the Capital Structure Properties of Real Estate Investment Trusts (REITs)

In the first chapter of this dissertation, I hypothesize that several non-tax-driven benefits of debt induce REITs managers to issue debt despite no apparent tax-driven benefit. Several methodologies and tests applied in capital structure literature are introduced to the literature of REITs capital structure. First, I investigate how the market prices leverage in absence of tax-deductibility benefit. Then, I diagnose the relative importance of several non-tax-driven benefits of leverage in deriving the capital structure decisions of REITs. Third, I conduct a thought investment experiment with debt-restricted vs. non-restricted REITs portfolios. I find weak evidence that leverage, by itself, creates value. Nevertheless, I find strong evidence that during financial crisis debt-restricted REITs perform better than non-restricted ones. Also I find evidence that lends support to the pecking order story of leverage. I conclude that REITs managers issue debt mainly to avoid issuing equity and to maximize wealth of existing shareholders. The second chapter addresses corporate diversification discount. I present and test a hypothesis that diversifiers exchange immediate diversification discount with future value gain attributed to unanticipated financial and strategic advantages of diversification. Two implications of this hypothesis are tested in this dissertation. First, the initial diversification discount found in static methodologies should be attenuated in a dynamic analysis. Second, diversifier's value evolution patterns are driven by the materialization of certain financial and strategic efficiencies. The overall results indicate that there is value recovery over time. Diversifiers' performance and value evolution is dynamically linked to synchronous improvements in market power, internal capital market activities, and cost efficiencies. Further, consistent with current evidence in diversification literature, related diversifiers outperform unrelated diversifiers. Moreover, related diversifiers witness faster value recovery relative to unrelated diversifiers.