| Chapter One: I test the Wall Street claim that investment banks place the shares of an equity offering in the hands of the "right" shareholders. I classify shareholders based on past trading characteristics. For IPOs where investment banks have discretion over selecting the firm's shareholder base, I find that investment banks do not satisfy long-term shareholders' demand for shares. For these IPOs, there is no correlation between initial shareholder composition and five-year returns following IPOs. In SEOs where investors select into the firm, I find a significant correlation between shareholder composition and five-year returns following SEOs. Post-SEO returns are lower if more short-term investors buy into the equity offering. This evidence suggests that the difference in post-SEO returns is due to stock selection by investors and not the placement decisions investment banks make.;Chapter Two: I use a negative exogenous shock to the ability to file shareholder initiated class action lawsuits, the passage of the 1995 Private Securities Litigation Reform Act, to test the effect of the probability of being sued on a firm's capital structure. After the passage of the Act, firms with the highest ex-ante probability of being sued have the largest decline in leverage ratio. The change in leverage is inversely related to the time until the debt matures. These results suggest that managers use their capital structure, specifically their short term debt, strategically as a negotiating tool in shareholder initiated class action lawsuits. |
