Essays in Finance

I present three theoretical models, each as an individual chapter. The first chapter is co-authored with Kenneth Mirkin and is titled ''Unwinding Venture Capital Investments: Asset Sales with Active Ownership.'' The chapter studies a dynamic model where venture payoffs depend both on project quality and on the strength of the match between a venture capitalist and a portfolio company. As a venture capitalist learns about the quality of her match, expected gains from trade emerge over time in response to negative information. I study the timing and pricing of these sales and derive a 'U-shaped' price path when performance measures are not publicly observed. The predictable path of prices arises as owners with private information spread sales inefficiently over a broad time span. While owners sell inefficiently in the competitive spot market, there exists an optimal long-term contract that leads to efficient reallocation of venture projects. I show that this contract exhibits underpricing.;The second chapter is co-authored with Bhagwan Chowdhry and Shaun Davies and is titled ''Incentivizing Impact Investing.'' The impact investing asset class is gaining popularity among investors. However, it is not well understood what market mechanisms and which financial securities will attract investors and provide incentives for managers to pursue projects that create social impact. I propose that investors who choose investments in social projects purchase Social Impact Guarantees (SIGs). SIGs are debt-like securities with face values endogenously determined by realized social output. The repayment design aligns the incentives of commercial and socially-conscious investors, allowing joint investment in social projects. SIGs create a social market within standard market frameworks and exploit well-established market mechanisms to increase social investment efficiency. Furthermore, the pricing of SIGs and residual claims provide valuable information to decision makers.;The final chapter is co-authored with Christian Ahlin and is titled ''Dynamic microlending under adverse selection: Can it rival group lending?'' In the chapter, I derive an optimal lending contract in a two-period adverse selection model with limited commitment on the borrower side. The contract involves 'penalty' interest rates after default, and favorable rates after success. Under some conditions, it also charges first-time borrowers higher rates than repeat borrowers, as in 'relationship lending,' because the lender is constrained to keep borrowing attractive while using revealed information to price for risk. I compare the efficiency of a group lending contract (of the kind popularized by the microcredit movement) to the dynamic, individual contract. Both types of contracts reveal the same information, but the contracts face different constraints on using the information to improve risk-pricing. As a result, either type of contract can lead to greater efficiency depending on specifics of the environment --- opening the possibility that dynamic lending has played a comparable role to that of group lending in the success of microcredit. I also characterize the optimal dynamic group contract when both lending techniques are feasible, and find that in more marginal environments, dynamic lending performs relatively better than, and is prioritized over, group lending.