Three essays in corporate finance: 1. An analysis of alliances in the movie industry. 2. Rating process and notching policy: Implications for senior and subordinated bond yields. 3. On the value of covenants: An empirical investigation of public bond

1. We use a movie industry data set that includes project-by-project information to address the question of the choice of internal project financing versus financing via alliances that span the legal boundaries of several business entities. We find that project risk matters for the choice of financing. Firms develop the safest projects internally. Additionally, we find that riskier firms tend to consider alliance formation. We interpret our results as consistent with the risk reduction motive. We find some support for the resource pooling and market structure hypotheses, consistent with a few of the notions developed by Lerner.; Finally, we find that projects developed via alliances do not outperform those developed internally.; 2. This chapter presents an empirical analysis of the rating process of bonds. We argue that rating agencies may choose to provide only a coarse grid, and resort to somewhat arbitrary techniques in refining it. Consistent with our argument, we find that the market systematically prices differently bonds of identical ratings but different seniority. Specifically, we find that yields of speculative senior bonds are higher than the yields of similarly rated subordinated bonds. The sign reverses in most cases for investment grade issues. We control for several other bond characteristics as well.; 3. This paper examines the price effect of restrictive covenants using a large dataset of public bonds issued between 1989 and 2001. We recognize that the decision to include covenants may be determined by the expected gain and control for the endogeneity of covenant choice using the self-selectivity model. We find that covenants restricting financing activities could significantly reduce the cost of debt. We do not find, however, strong evidence that covenants that restrict investment activities and asset sales and covenants that restrict payouts reduce the cost of debt. In some cases, covenants may exist by providing no significant benefits while imposing no real harm in line with Miller's (1977) notation.