Essays in corporate finance

This dissertation provides theoretical explanation and empirical evidence of how corporate governance and capital structure affect different corporate stakeholders. The first essay looks at the threat of hostile takeovers and innovation. Using a panel of 14,675 firms over the 1976-2000 period, it shows that firms incorporated in states that enact antitakeover laws innovate less than firms in states that do not enact these laws. The second essay examines how capital structure is related to innovation. It demonstrates that firms that rely more on arm's length financing such as equity and public debt receive a larger number of patents, and these patents are more significant in terms of influencing subsequent patents. The third essay investigates how the legal protection of investors and labor interact with firm capital and ownership structure to shape corporate restructuring decisions in poorly performing firms. It finds that firms with poor operating performance are more likely to undertake large scale layoffs and top management turnover when investor protection is stronger. Major asset sales are more common when investor protection is very weak and very strong: Asset sales tend to be value-destroying (value enhancing) in weak (strong) investor protection countries. Strong collective relations (labor union) laws seem to be effective in preventing layoffs and asset sales, but only in countries with good investor protection. When investor protection is weak, strong union laws are associated with less management turnover and more asset sales, suggesting collusion between management and workers.