Essays in Corporate Finance

This thesis consists of three empirical and theoretical studies in corporate finance. The first study examines the effect of institutional common ownership on corporate innovation. We find that institutional common-ownership has no significant impact on corporate R&D investment but disincentivizes patent-related innovation by significantly reducing patent quantity, private value, and novelty. The disincentive impact is more pronounced on firms with high market competition, long-term focused managerial incentives, and low patent litigation risk. Firms lower their patent weapons as competition is reduced by institutional common-ownership, and reallocate resources to other R&D activities. The second study examines the effect of social media coverage on corporate innovation. We document a positive and potentially causal relation between firm coverage initiation on social media platform Seeking Alpha (SA) and corporate innovation in terms of patent quantity, quality, novelty and efficiency. We further show that firms with higher information asymmetry and those facing intense product market competition are associated with a greater increase in innovation outcomes following SA coverage initiation. Our findings suggest that third-party generated information on social media mitigates the information asymmetry between firms and investors on innovation activities and incentivizes corporate innovation. The third study develops a theoretical model of dual-class shares by emphasizing the difference in governance mechanism (“voice” and “exit”) by blockholders with voting and non-voting shares. We show that non-voting blockholder’s monitoring effort is positively related to that of voting blockholder, and is the trade-off between stock liquidity and asymmetric information risk. Price differential in dual-class stocks is the compounding effect of voting power, liquidity and asymmetric information risk