Three essays on investments and corporate finance
This dissertation consists of three essays on investments and corporate finance. The first essay is an investment article focused on factors affecting market makers in the trading of securities, the second essay is a corporate finance article which empirically tests theories of what factors motivate executives to innovate, while the third essay is a corporate finance article which empirically tests theories of why returns are higher in firms with high organization capital investments. For the first essay, I evaluate the shift in the duration of legal insider trading and asymmetric information after Sarbanes Oxley, and find that market makers can identify asymmetric trading via the PIN measure and abnormal volumes and adjust spreads accordingly. This study is the first to consider the duration and accuracy of asymmetric trading and their effects on bid ask spreads. The second essay considers executive incentives to innovate based on firm governance and compensation policies. Basically it seeks to empirically test the theoretical predictions of Manso (2011). Manso theorizes that the individual choice of management to innovate is motivated by a firm tolerance for early failure, as innovations often struggle along their development paths. Ultimately, I find empirical support for many of the predictions of Manso. The third essay addresses how the threat of talented employee departure from firms affects firm risk. Eisfeldt and Papanikoloau (2013) introduced the idea that the threat of the loss of key talent may increase risk for firms with high levels of organization capital. However, they do not provide direct evidence that this risk increase is due to this employment threat, and other literature has suggested that SG&A risk is from management inability or unwillingness to reduce costs. I add to this debate by testing the movement of inventors between firms, and find strong support for the theories of Eisfeldt and Papanikolaou (2013).