This dissertation has three chapters. Each chapter focus on separate issues in corporate finance. The first chapter studies how information production is allocated between buy-side and sell-side firms when identical information-producing agents can choose to be either sell-side analysts or buy-side fund managers. We find that for analysts to be in equilibrium, they must receive some form of subsidy. Without a subsidy, competition among both analysts and fund managers makes an analyst's profit lower than that of a fund manager. Tying investment banking to sell-side research enables such a subsidy. Even though this subsidy may cause a conflict-of-interest problem, a total separation of investment banking from sell-side research to solve the problem may not be a good idea, because analysts improve social welfare by enhancing the information efficiency of the financial markets. This paper also explains the existence of independent research and the fee structure in the credit rating industry. In the second chapter, we consider a setting in which an entrepreneur chooses between angel and venture capital financing to fund his new project. The entrepreneur may raise the required external financing over several rounds, though a certain minimum amount needs to be raised initially. There are four key ingredients driving the entrepreneur's choice between the above two sources of private equity financing in our model. First, venture capitalists are able to add value to some of the firms they finance, while angels are not able to add significant value. Second, the entrepreneur has private information regarding the nature of his own firm. Further, the extent of this private information evolves over time, since a financier who has financed the firm in prior rounds will know more about it than a new financier. Third, since the venture capitalist has to engage in privately costly effort to add value to the firm, the financial contract between the two has to provide him with the right incentives to maximize this value-addition. Finally, the entrepreneur's effort is also required to ensure project success. The third chapter studies the monitoring role played by the financial markets. If managers of firms have discretion in choosing their costly efforts, firms have to use signals about managerial efforts to monitor them. This paper explores two monitoring mechanisms: (i) firms can use informative security prices to provide incentives to managers, we call this the public monitoring; or (ii) firms can monitor the managers by producing information themselves, we call it private monitoring. We find that in general, when firms can commit to costly information production, private monitoring is better than public monitoring. However, when firms cannot commit, public monitoring is better because firms can commit to information production in financial markets. The analysis provides a rationale for market based executive compensation. (Abstract shortened by UMI.)
