Evidence shows that nonbanks, which are now significant participants in the corporate loan market, exploit information gained from lending to trade in public securities. In the first essay, I examine whether these institutions use loan-based information to facilitate merger and acquisition (M&A) deals. I find that firms are more likely to become targets if they borrow from nonbanks rather than banks. Borrowing from a larger number of nonbanks or from those with a sizeable client network also enhances a firm’s acquisition prospects. When nonbanks gain more information about borrowers through loan amendments or multiple loans, the impact of nonbank lending grows stronger. I also identify three channels that might allow nonbanks to exploit loan-based information in the M&A market. In the second essay, I focus on the difference in covenant structure between nonbank loans and bank loans. Previous studies show that loans to riskier borrowers are more likely to have stronger financial covenants in order to mitigate agency problems and conflicts of interest between debt and equity holders. Interestingly, I find that nonbanks loans have fewer, less restrictive financial covenants than commercial banks, all else equal. Although the prior literature shows that banks play an active role in corporate governance following covenant violations, I find that nonbanks are less likely to intervene in borrowers’ decision making in similar circumstances. Nonbank borrowers are significantly more likely than bank clients to experience severe financial distress.

This thesis is composed of four chapters and addresses the contracting issue under strategic experimentation. The first chapter presents an overview of the thesis and introduces the strategic bandit model, which is commonly adopted in the other three chapters. The chapter also previews the main results and implications of the thesis. The second chapter discusses the contracting issue between a principal and a team of agents where the actions of agents are unobservable to the principal. The main contribution of this chapter is to fill the gap of strategic experimentation literature by introducing the free-rider problem in teamwork. The chapter first deals with the optimal hiring choice of the principal under perfect information. Since the belief of the state being good decreases if no one succeeds over time, the paper shows that the principal tends to hire fewer agents in response to the downward-adjusted posterior belief. When the principal can neither monitor the agents' actions nor distinguish the agents who succeed, this chapter shows the optimal incentivising contract consists of an upfront payment from the agents to the principal, a bonus to every agent conditioning on success and a stopping time. Under this contract, the principal can implement first-best experimentation and incentivise all agents to work until the optimal stopping time. The third and fourth chapters discuss the financial contracting issue in innovation where an innovator requires external funding from an investor. The third chapter adopts a \bad news" exponential bandit to study the financial contracting under adverse selection between the innovator and the investor. The innovator, owns the innovation project, is privately informed of either a high or low prior belief of the good state but seeks a large amount of external investment from the less-informed investor. Experimentation is conducted by the innovator using internal funding before the external investment. The posterior belief about the good state increases in the amount of internal funding if no bad news arrives during experimentation, but the project will be abandoned as long as bad news arrives. The chapter shows that the amount of internal funding can be used by the investor to separate the agents with different priors. Under the unique least-costly separating equilibrium, the high-prior innovator spends even more than the low-prior first-best internal funding in order to deter the low-prior one from mimicking, and the low-prior one remains at his first-best. This chapter enriches the financial experimentation literature by proposing internal funding as a novel signalling tool and establishing a Pareto dominating separating equilibrium. The fourth chapter studies a multi-stage innovation financing problem between an agent and an investor with asymmetric information on the progress of the project. The innovation is comprised of two stages where the agent needs to complete the first development stage in order to proceed to the second experiment stage. The model assumes that the completion of the first stage can be early or late following a binary distribution, and the arrival of success in the experimentation stage follows a "good news" exponential bandit. Each period, a fixed amount of investment is needed from the investor. However, the investor can not observe nor verify the project progress. The chapter shows that the optimal incentive-compatible contract consists of differential maximum funding periods in the event of early and late completion of the first stage respectively and subsequent bonuses to the investor conditioning on a success in the second stage. We prove that the first-best experimentation time is attainable as long as the bonus of the late completion exceeds that of the early completion, and the difference between the two bonuses should be confined within a certain range. In the extension, we consider the case when the first stage completion time is informative such that an early completion indicates a higher prior in the good state than the late completion. Under imperfect information, the agent has a stronger incentive to mimic the early completion if the first stage is completed late as a longer experimentation time will be granted according the first-best contract. The chapter proves that the first-best is still achievable under a similar bonus contract but the difference between the two bonuses becomes smaller. This chapter contributes to the experimentation financing literature including the information imperfectness on project progress and multi-stage spillover effects.

In this thesis, we investigate how multinational (MNC) parents can use the way they finance their subsidiary firms in order to constrain subsidiary management. In the first essay, we develop a theoretical framework in which we consider a number of alternative decisions related to the financing of MNC subsidiary firms. We show that, from the MNC parent's perspective, the optimal choice is to delegate the monitoring of the subsidiary to host-country banks and finance the subsidiary using short-term and short-term external debt. This arrangement will guarantee that the MNC subsidiary management exerts an optimal amount of effort and abides by the objectives set by the MNC parent. In the second essay, we propose and test four hypotheses addressing how MNC parents can use short-term and short-term external debt to constrain the rent-seeking behaviour of subsidiary management. One set of hypotheses analyses the use of short-term debt. The second set of hypotheses investigates the use of short-term external debt. Moreover, we investigate these two hypotheses in two different settings to measure: (i) the subsidiary effect by comparing between UK domestic and UK subsidiary firms and (ii) the location effect by comparing UK and US subsidiary firms. We find support for our hypotheses, namely that UK subsidiaries have more short-term debt and more short-term external debt as compared to equivalent UK domestic firms, and that US subsidiaries have more short-term debt and less short-term external debt compared to equivalent UK subsidiaries. Our results are both statistically and economically significant and are robust to the use of a matched sample approach to test our hypotheses. The third essay investigates the relationship between the bargaining power of MNC subsidiary firms and the way these firms are financed by analysing the source and the maturity of financing arrangements. We argue that the financing arrangements used to finance the subsidiary are linked to its ability to engage in rent-seeking behaviour and the latter depends on the amount of bargaining power that the subsidiary possesses. We use four different measures of bargaining power, namely age, size, presence of foreign sales and percentage of foreign sales. Using data relating to UK and US MNC subsidiaries between 2001 and 2010, we test two sets of hypotheses linking the bargaining power of the MNC subsidiary firms with the use of short-term debt and the use of external short-term debt. Our results provide strong support for our short-term debt hypotheses while support for our external debt hypotheses is more limited. The results are also economically significant when using the percentage of foreign sales as a bargaining power proxy. We also notice that the use of debt to constrain subsidiary management behaviour appears to differ across UK and US MNC subsidiary firms.

Submitted by Andre Espozel (andre.espozel@gmail.com) on 2017-04-19T17:47:32Z No. of bitstreams: 1 Dissertação - Andre Espozel - FGV-EPGE.pdf: 856389 bytes, checksum: 16cd3a3bbe1de2cc9ab98b718b21acb8 (MD5) / Approved for entry into archive by GILSON ROCHA MIRANDA (gilson.miranda@fgv.br) on 2017-05-04T12:58:29Z (GMT) No. of bitstreams: 1 Dissertação - Andre Espozel - FGV-EPGE.pdf: 856389 bytes, checksum: 16cd3a3bbe1de2cc9ab98b718b21acb8 (MD5) / Made available in DSpace on 2017-05-12T13:05:06Z (GMT). No. of bitstreams: 1 Dissertação - Andre Espozel - FGV-EPGE.pdf: 856389 bytes, checksum: 16cd3a3bbe1de2cc9ab98b718b21acb8 (MD5) Previous issue date: 2017-03-22 / This papers tests theoretical predictions concerning to agent compensation, debt structure and investment in the models of dynamic agency in DeMarzo and Fishman (2007), DeMarzo and Sannikov (2006) and DeMarzo, Fishman, He and Wang (2012). The results related to agent compensation are consistent with the patterns predicted in the models, indicating that the firm-years that the models would have as more likely to pay dividends are indeed the ones more likely to pay; also, among firms that pay dividends, more profits generate higher dividend payments and higher executive compensation, as predicted in the models. The prediction that firms that go well and reach a payment threshold present marginal q equal to average q, and thus after controlling for average q cash flows would not explain investment is also supported by the tests in here. On the other hand, predictions related to the role of the credit line and to the debt structure are not compatible with the results in here. The credit line doesn’t seem to be the provider of financial slack that protects the firm from low cash flows and also doesn’t seem to have the dynamics of being paid when profits are high and being more used when profits are low.

Made available in DSpace on 2010-04-20T20:55:55Z (GMT). No. of bitstreams: 3 68050200531.pdf.jpg: 24637 bytes, checksum: a9469b3a5f734c6738b9ff9c49f2508f (MD5) 68050200531.pdf: 1938487 bytes, checksum: 9dd4afb2a2459dfda859ad5f8c463ad4 (MD5) 68050200531.pdf.txt: 294218 bytes, checksum: 5ff7dfde34e99cc9cdf90feb228133a3 (MD5) Previous issue date: 2008-12-19T00:00:00Z / Nas economias desenvolvidas, especialmente nos Estados Unidos, a indústria de Private Equity & Venture Capital, que vive o seu segundo ciclo de expansão no Brasil, representa importante fonte de crescimento e dinamização da atividade econômica, através do fomento do empreendedorismo e da inovação tecnológica. Como tal, o estudo da adaptabilidade deste mecanismo a diferentes ambientes jurídico-institucional merece crescente atenção. A complexidade dos chamados contratos incompletos pelas incertezas e assimetrias de informações intrínsecas a estas operações, aliado ao estabelecimento de estruturas de incentivos ótimas que remunerem e protejam adequadamente tanto o investidor quanto o empreendedor, pode ser um fator limitante da expansão do modelo de PE/VC em determinadas geografias. Estas limitações seriam maiores nos países com sistemas legais e instituições menos adaptáveis ao modelo norte-americano de PE/VC. O objetivo central deste trabalho é estudar modelos de financial contract praticados no Brasil entre fundos de PE/VC e empresas investidas em diferentes estágios de maturação; visando a identificar como, se é que existem, condições impeditivas do nosso ambiente jurídico-institucional à celebração de contratos mais eficientes. À luz das teorias em financial contracting e das peculiaridades do ambiente jurídico-institucional brasileiro avaliar-se-á a adequação das estruturas contratuais mais utilizadas em operações de PE/VC no Brasil comparadas aos modelos e às estruturas contratuais mais praticados internacionalmente. De posse destes insights, aplicar-se-á questionário junto a operadores da indústria (gestores de fundos de PE/VC) para identificar suas percepções no tocante às limitações impostas pelo ambiente jurídico-institucional. E se há, na visão deles, um modelo / estrutura de contrato mais recomendado para operações de PE/VC.