Three essays in corporate finance and insurance

This dissertation contains three essays in the area of insurance and corporate finance. The first essay examines the optimal contract in the presence of an insurer's opportunistic behavior when he has private information about loss amounts. This optimal contract designates full insurance up to a limit and a constant payment above that limit. It is the mirror image of the optimal contract that Kaplow (1994) and Bond and Crocker (1997) find when an insured may file a fraudulent claim. The optimal contract with a constant payment for large losses can be generalized to any Pareto-efficient contract.; The second essay examines why dual tracking firms---private firms entertaining acquisition offers at the same time as preparing for initial public offerings (IPOs)---withdraw their IPOs after spending considerable time, money, and effort preparing for the IPO only to be purchased by public acquirers. We argue that in dual tracking, filing IPO registrations reduces the valuation uncertainty between the private targets that withdraw their IPOs and their bidders. We document that such private targets sell at a 58 percent acquisition premium relative to comparable private targets that never file IPO registrations, while their acquirers still earn a substantial average abnormal announcement return of 2.6 percent.; In the third essay, we find that second-time IPOs (issuers that return to the IPO market successfully after withdrawing their first IPOs) sell at a significant discount relative to similar contemporaneous first-time IPOs (IPOs that succeed in their first attempts). This result indicates that the withdrawal event, which is public information, is incorporated into offer prices when withdrawn-IPO firms return for second IPO attempts. We also find that, (1) the magnitudes of price revision and initial return experienced by second-time IPOs are similar to those of matched first-time IPOs, (2) in the long run, second-time IPOs do not underperform contemporaneous first-time IPOs in either stock price or operating performance. These findings suggest that the discount is appropriate and that the market fully adjusts the offer price of second-time IPOs to reflect the negative information conveyed by their previous withdrawals.