Two Essays on Firms’ Reactions to Major Events in Rival Companies

The first essay of this dissertation examines the influence of peer credit rating downgrades on firms’ financial decisions. The results show that firms respond to a rival’s downgrade by increasing excess debt capacity, excess cash holdings, excess net working capital, and the excess cash conversion cycle. They also accelerate their speed of adjustment (SOA) toward target capital structures. These adjustments are motivated by a desire to mitigate the higher costs and risks associated with financial distress and to preserve competitive advantage. Moreover, firms with more capable managers, and those operating in environments with greater market competition, higher information asymmetry, and higher internal uncertainty, adjust their financial policies more quickly toward target levels. The findings contribute new insights into the peer effects that shape corporate financial behavior. The second essay, using a sample of 68,608 firm-year observations of firms that appointed a female CEO and their industry rivals, investigates how rival firms respond to such appointments. The results indicate that rival firms led by male CEOs—who may perceive themselves as more capable than the newly appointed female CEO and expect her to be less inclined toward risky decisions—increase their risk-taking after the appointment. This heightened risk-taking subsequently leads to a decline in performance, with overinvestment identified as the primary channel linking female CEO appointments to the performance drop in rival firms. In addition, the analysis identifies firm-specific, rival-specific, and industry-level factors that moderate the relationship between female CEO appointments and changes in rivals’ risk-taking and performance.