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There is now a CONTENT FREEZE for Mercury while we switch to a new platform. It began on Friday, March 10 at 6pm and will end on Wednesday, March 15 at noon. No new content can be created during this time, but all material in the system as of the beginning of the freeze will be migrated to the new platform, including users and groups. Functionally the new site is identical to the old one. webteam@gatech.edu
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for Monday, March 29th, from 9:00 - 10:30am ET. To attend, please use the following Bluejeans link:
https://bluejeans.com/131099950
An overview of the dissertation is included below. Copies of the essays are available upon request.
Regards,
Peter
Peter Simasek
Ph.D. Candidate in Finance
Scheller College of Business
Georgia Institute of Technology
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Area: Finance
Committee Members: Dr. Alex Hsu (Chair), Dr. Robert Dittmar, Dr. András Danis, Dr. Daniel Weagley, Dr. Linghang Zeng
Title: Essays on The Effects of Variable Debt Obligations
Dissertation Overview:
Essay 1: Pension Risk Transfer and Firm Leverage: The Cash Flow Volatility Channel
I develop a novel dataset to examine the impact of pension group annuity purchases on capital structure and corporate policies. Pension obligations are shown to contribute to rising cash flow volatility to stakeholders, which is a prominent factor in the decision to offload these liabilities. I find the reduction in pension debt is replaced with a commensurate dollar value of long-term debt. The substitution is concentrated in financially unconstrained firms, while those facing greater financial constraints reduce total leverage. Firms engaging in a group annuity purchase increase pension contributions and capital expenditures in the event year. Consistent with a lower expected probability of future cash shortfalls, changes to investment policy are concentrated in financially constrained firms. Short and long horizon event studies reveal pension annuity buyouts are associated with significantly negative abnormal returns due to disappointing cash flow news upon announcement.
Essay 2: Default Risk and the Pricing of U.S. Sovereign Bonds
We examine the relative pricing of nominal Treasury bonds and Treasury inflation-protected securities (TIPS) in the presence of United States default risk. Higher bond yields are associated with a higher U.S. credit default swap premium, but more so for TIPS. This leads to a narrower breakeven inflation (BEI). An estimated no-arbitrage model shows BEI is related to differing expectations of loss given default on the two Treasury securities and that most of the relative mispricing after the financial crisis can be attributed to default risk. Our finding suggests credit risk is embedded in the pricing of U.S. sovereign debt.
Essay 3: Pension Overhang and Corporate Investment
We exploit an exogenous, universal increase (decrease) in discount rates (pension liability) mandated by the Moving Ahead for Progress in the 21st Century Act (MAP-21) to identify the impact of pension overhang on investment. We find firms with large unfunded pension liabilities increase investment by 13% after the imposition of higher rates. The effect of pension overhang is incremental to traditional debt overhang. The effects are strongest for firms most likely to suffer from financial constraints, while pension-related cash flows have minimal impact on investment policy. Our results highlight how pension liabilities, through the overhang channel, impact firm investment.
