Firm boundaries and financing choices in human capital intensive firms: Theory and evidence

This dissertation develops a theory of firm boundaries and financing choices in human capital intensive firms. I argue that when contracts are incomplete, power over intangible assets like knowledge and ideas accrues from having access to the asset and owning the rights to use this asset. Access has a symmetric effect on incentives of two agents in a relationship while ownership has an asymmetric one. Hence, choosing both access and ownership optimally maximizes incentives to make specific investments. Chapter 1 applies the theory to predict the optimal firm boundaries as a function of the ease of replicating knowledge. The boundary choices analyzed are mergers/acquisitions, joint ventures, strategic alliances and arms length contracts. Chapter 2 predicts the optimal financing choice as a function of ease of stealing ideas and the nature of assets required for developing the idea. The financing choices examined are independent venture capital, corporate venture capital and a firm's internal capital markets.