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theses

The focus of this dissertation is on the interactions of real and financial decisions. First, I investigate the role of minority equity purchases on the innovation activities of the US firms. I provide evidence of an increased innovation activity following minority equity purchases targeting firms with a small size patent portfolio prior to acquisition. Using a hand collected data I show that the positive effect of minority equity purchases is nonexistent when there is no simultaneous cash transfer to the target firm. Target firms in minority acquisitions increase their innovation while a matched sample of firms in the same industry with similar technological stock and having similar size show no increases in the innovation performance. I also show that firms which are financially constrained prior to the minority acquisition increase their innovation afterwards. Second, I try to address the question that whether insiders who know about success/failure probabilities of innovation projects ahead of outside investors trade on this private information? This study finds that insiders' purchases in large firms precede the patent application for important innovation. US publicly held large firms increase their innovation quality, as measured by non-self citations received per patent applied, by 25% subsequent to the share purchase of top insiders. An event study analysis is conducted to understand the stock price reaction to the important innovations. I provide the evidence that the average cumulative abnormal returns of insiders on their purchases prior to the important patent applications are economically large and significant especially in the long run. The study also show that the positive price reaction to important innovations only occurs when insiders purchases their firm's stock and stock prices react negatively to the application or grant of the important breakthroughs. The use of private information by insiders seems to be less prevalent in firms with better corporate governance. Firm innovation quality also deteriorates after insiders sell their share in the company. The results are robust to changing the econometric methods employed, controlling for time and firm fixed effects as well as stock return and other firm characteristics.

ETD_6642

Ph.D.

Includes bibliographical references

by Ibrahim Bostan

doi:10.7282/T3W097XK

ETD doctoral

The author owns the copyright to this work.