Topics in corporate finance

This dissertation studies the effects of agreement in corporate finance. The first essay explores the impact of financial markets on corporate decisions. The second essay investigates why private equity firms are serving as financial intermediaries.; The first essay studies the behavior of low stock price firms and adds to this literature in several ways. First, a theoretical model is developed reconciling this finding with the existing investment-stock price dependence empirical results. If investment is likely to increase the interim stock price, the manager will invest and monitor costs less pertinacious. Second, a new dimension of corporate behavior that is stock price dependent is documented. Low stock prices precede a lower cost structure. Third, empirical tests provide strong support for the model. In particular, low stock prices predate lower costs, investments, and higher cash flows. Robustness checks reveal that the results are not driven by firms' financial constraints or issuance of debt and equity securities.; The second essay presents a model in which private equity emerges endogenously as a form of financial intermediation. The key to the model is twofold. First, investors have different levels of alignment with the manager. Second, trading in public markets results in little surplus for those with high alignment. Private equity investors solve a coordination problem created in the public market by competition. For each potential private equity investor with a high level of alignment with the manager, any trading creates a frenzy in which the marginal surplus is zero. Thus, forming a coalition of private equity investors and extracting the benefit from the higher alignment provides more surplus than the cost of forming the coalition. The benefit is greatest when the public market has a low level of alignment and a large amount of volatility. The firms' benefit for issuing private equity is the gain from having investors with a higher level of alignment. Basic empirical tests provide support for the model.