Essays on Capital Structure and Dividend Policies

Leverage, Unemployment Risk and Employee Compensation: Firm’s leverage may have both positive and negative effects on employee compensation. High leverage results in higher financial constraints thereby restricting firm’s ability to pay workers, i.e. compensation decreases with leverage. On the other hand, high leverage exacerbates firm’s bankruptcy risk, against which employees require higher compensation ex-ante. In sum, compensation increases with leverage. I show that unemployment risk – employees not being able to find another comparable job in the event of job-loss – plays a key role in determining the effect of leverage on wages. When unemployment-risk is low, compensation decreases with leverage; as this risk becomes more prominent, compensation increases with leverage.

Exogenous Information Shock and Dividend Payout Policies: Evidence from IFRS Adoption: We study changes in firms’ dividend policies in response to improved information environment between investors and firms, enabled by IFRS adoption. We document that the relation between information asymmetry reduction and dividend payout policy is not monotonic, and in fact depends on firm’s underlying growth opportunities. Following mandatory adoption of IFRS, firms with low growth opportunities exhibit higher propensity of paying dividends. On the other hand, those with high-growth opportunities exhibit reduced propensity of paying dividends. These results are consistent for dividend payout ratio as well. These, in conjunction, suggest firm’s growth rate play a key role in determining the impact of improved information environment on firm’s dividend policies.