Strategic Corporate Responses to External Shocks and Competitive Pressures

Abstract

This thesis comprises three studies in corporate finance. The first study examines the impact of cyberattacks on a target firm’s decision to issue seasoned equity offerings (SEOs, hereafter) and the spillover effect on SEO decisions made by non-attacked peer firms in the same industry. Our findings show that target firms and their peer firms undertake fewer and smaller SEOs in post-attack years. Peer firms are likely to become subsequent victims after a cyber incident has occurred in their industry. Specifically, we find that the negative impact of a cyberattack on peer firms’ SEOs is more pronounced when the firms exhibit a higher potential risk of future attacks and have greater visibility. This is because of the perception that these firms present a higher transaction risk than their industry peers. Additionally, we find the negative effect of a cyberattack on peer firms’ decisions about SEOs to be more pronounced than for those firms with substantial IT expenditure and cash reserves, because these firms have less necessity to issue equity. The second study examines the role of acquisitions in determining the adoption of relative performance evaluation (RPE, hereafter) based on CEO compensation among non-merging peers of the acquirer. Our findings show that peer firms exhibit an increased propensity to adopt RPE in their CEO compensation. This strategic move aims to counter competitive pressures induced by an acquisition and defends the company’s competitive position in the product market. Our result aligns with RPE theory that suggests that incorporating RPE into CEO compensation incentivizes firms to aggressively improve their relative competitive position. The third study focuses on the spillover effect of major hurricanes by investigating the impact on the decisions of industry peers of hurricane-hit firms to issue management forecasts. Our findings show that industry peers tend to increase the frequency of their management forecasts after a major hurricane. This increase in forecast frequency is positively related to firm visibility and changes in market share, suggesting that a major hurricane gives peers an incentive to capitalize on the difficulties faced by hurricane-hit firms. This is achieved by attracting investor attention and enhancing market share. Overall, the thesis contributes to existing studies on intra-industry spillover effects by providing a comprehensive understanding of how firms not directly involved in a specific event strategically respond to reputation loss, competitive pressure, and opportunities in the post-event era. The thesis offers valuable insights for both researchers and practitioners, shedding light on the complex interplay between external events, competitive pressures, and firms’ strategic responses in the ever-evolving corporate environment.