Author Type

Graduate Student

Date of Award

Summer 7-20-2026

Document Type

Dissertation

Publication Status

Version of Record

Submission Date

August 2026

Department

Management Programs

College Granting Degree

College of Business

Department Granting Degree

Management Programs

Degree Name

Doctor of Philosophy (PhD)

Thesis/Dissertation Advisor [Chair]

Mark Packard

Abstract

This dissertation explores the institutional and economic forces shaping corporate financial policy, specifically examining why firms deviate from industry-typical leverage and cash holdings, whether they converge toward these norms, and the performance implications of such trajectories. I develop a framework, rooted in institutional theory and dynamic capital structure literature, that characterizes firms with extreme, multi-year financial policies as "deviant by design." While managers might maintain non-normative leverage or cash positions for firm-specific efficiency gains, these choices often clash with established industry templates, leading to legitimacy costs and institutional pressure for conformity.

Using a longitudinal panel of U.S. public firms from 2000 to 2025, I identify persistent outliers and analyze their convergence paths. My empirical results reveal a significant asymmetry: persistently cash rich firms actively reduce their liquidity to align with industry benchmarks, whereas persistently underleveraged firms show significant inertia. Contrary to expectations, I find no evidence that analyst coverage moderates these convergence dynamics, suggesting that external analyst monitoring may not be the primary driver of financial conformity. Finally, examining the performance consequences of convergence shows that while capital markets reward firms with a short-term positive valuation premium (higher Tobin’s Q) for moving toward industry norms, this market re-rating does not translate into sustained long-run improvements in accounting profitability (ROA). These findings suggest that financial policy convergence primarily serves as a mechanism for external signaling and legitimacy management, rather than a driver of fundamental operational improvement. This study extends institutional theory into corporate finance, offering new evidence on the decoupling of market expectations and substantive economic performance following organizational conformity.

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