Three essays in finance

Chapter One studies the interaction of agency costs of debt and equity. We investigate the influence of shareholder-manager incentive alignment on the cost of debt in a sample of dual-class firms, where managerial voting rights and cash-flow rights can be separated. We find that the cost of debt financing increases in managerial voting rights and decreases in cash-flow rights. We find consistent results when analyzing credit ratings. Our results suggest that the agency costs of equity and the agency costs of debt are positively related.;Chapter Two studies the impact of asymmetric information on three main mechanisms of corporate governance: the intensity of board monitoring, the exposure to market discipline, and the pay-for-performance sensitivity of CEO compensation. We find that firms facing greater asymmetric information tend to use less intensive board monitoring but rely more on market discipline and CEO compensation. These results are consistent with the monitoring cost hypothesis. These results also support the notion that firms endogenously choose governance and are in equilibrium. Our study therefore suggests that regulators should use caution in imposing uniform requirements on firms' corporate governance.;Chapter Three investigates the effect of capital gains on ex-dividend day trading behavior. We argue that because the capital gains tax poses an important cost, ex-day traders are less willing to sell appreciated stock around ex-dividend day. As a result, higher capital gains should have a negative effect on ex-day excess trading volume. We document evidence consistent with our conjecture. We further report that the reduction effect of capital gains on ex-day excess trading volume is more pronounced in firms with a lot of individual investors. We attribute this finding to the asymmetric impact of the capital gains tax on individual versus institutional investors.