Essays in corporate finance

This dissertation presents three essays in Corporate Finance. In the first essay, I study managerial incentives in internal capital markets. In particular, I develop a two-tiered agency model to study division managers' incentives within internal capital markets. Division managers try to influence the external capital market's assessment of the firm and the internal capital market's assessment of their divisions in order to increase their level of funding. I show that, as the number of divisions increases, the external capital market's assessment of the firm becomes a public good for division managers, and the internal capital market replaces the external capital market in the provision of managerial incentives. I also show that, while diversified firms have an advantage in allocating resources, this may come at the expense of managerial incentives. Based on the analysis, the paper relates the value of diversification to characteristics of the firm, the industry, the external capital market, and the internal capital market. In the second essay, I propose a model of entrepreneurship in which investors decide whether to become venture capitalists or to form firms and entrepreneurs decide whether to join a firm or seek financing in the venture capital market. The venture capital market allows better matching between investors and entrepreneurs, but this comes at the cost of adverse selection. The model suggests that as a sector matures, innovation takes place first within firms, then in ventures backed by venture capitalists backed ventures, and finally within firms again.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2001

Author dc:creator

• Motta Gregori, Adolfo de, 1970-

Advisor dc:contributor.advisor

• Denis Gromb and Bengt Holmstrom.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/8220

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/8220