Essays in Corporate Finance

This dissertation studies the effects of informational asymmetries on corporate finance. Two distinct settings are considered, one empirical and one theoretical. In the first chapter, I show that strong creditor rights facilitate the financing of innovation, using a novel dataset of patent collateral portfolios. Using the random timing of court decisions as a source of exogenous variation in creditor rights, I show that patenting companies raise more debt financing when they can more credibly pledge their patents as collateral. Consequently, R&D investment and patenting output also increase, as do the technological diversity and average citation count of the patents produced. These findings demonstrate that low leverage in innovative industries is due to information asymmetry, not incentive problems, and that a strengthening of creditor rights alleviates this friction by increasing collateral values. In the second chapter, we identify three new factors that affect the firm's decision between equity issuance and asset sales in the presence of information asymmetry. First, equity investors own a claim to the capital raised, which mitigates the information asymmetry of the underlying balance sheet (the "certainty effect"). Second, firms can disguise the sale of a low-quality asset as instead motivated by dissynergies, and thus receive a higher price (the "camouflage effect"). Third, unlike with an equity issuance, a "lemons" discount on assets need not lead to a low stock price, as the asset is not a carbon copy of the firm (the "correlation effect"). The findings demonstrate that information asymmetry is a function of the nature and purpose of the firm's financing decisions. Degree Type Dissertation Degree Name Doctor of Philosophy (PhD) Graduate Group Finance First Advisor Michael R. Roberts Subject Categories Finance and Financial Management This dissertation is available at ScholarlyCommons: http://repository.upenn.edu/edissertations/1358 ESSAYS IN CORPORATE FINANCE William Mann A DISSERTATION in Finance For the Graduate Group in Managerial Science and Applied Economics Presented to the Faculties of the University of Pennsylvania in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy 2014 Supervisor of Dissertation Michael R. Roberts William H. Lawrence Professor of Finance Graduate Group Chairperson Eric Bradlow K.P. Chao Professor, Marketing, Statistics, and Education Dissertation Committee Michael R. Roberts, William H. Lawrence Professor of Finance Todd Gormley, Assistant Professor of Finance Mark Jenkins, Assistant Professor of Finance Alex Edmans, Professor of Finance, London Business School