Download or read book Essays on Dynamic Firm Behavior written by Anton Babkin and published by . This book was released on 2017 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first chapter examines firm's optimal financing choice in the presence of moral hazard. I develop a dynamic model of firm external financing that includes two types of debt, direct and intermediated. First, firms optimally choose whether to use monitoring. Second, idiosyncratic shocks to firm project success lead to an endogenous distribution of firms. Third, dynamic considerations introduce a precautionary motive into firms' behavior that makes them act as if they were risk averse and not to invest all available funds into a single risky project. The second chapter studies the phenomenon of corporate inversions. Corporate inversion, the process of redomiciling for tax purposes, reduces corporate income taxes, but it imposes a personal tax cost that is shareholder-specific. My coauthors and I develop a model, incorporating the corporate tax benefits and personal tax costs, to quantify the return to inversion for different shareholders. Foreign and tax-exempt investors, along with the chief executive officer, disproportionately benefit. We show that an inversion simultaneously reduces the wealth of many taxable shareholders. The model illustrates an agency conflict in which heterogeneity in personal taxes generates a wealth transfer between shareholders. Furthermore, personal taxes offset the loss in government revenue by 39%. In the third chapter my coauthor and I develop a dynamic model that demonstrates how the market for mergers and acquisitions affects a firm's decision to innovate. Firms are heterogeneous in three dimensions: output productivity, stock of intangible assets, and ability to produce new assets internally. More productive firms need more intangible assets in order to optimally scale up. Intangible capital production is subject to decreasing returns to scale. Without the M&A market, large productive firms are investing a lot in R&D, even though the return to this investment is low. Small and less productive firms don't invest much even if the return to investment is high, because if their productivity falls even further, they will not be able to sell excessive stock of intangible assets. The M&A market provides an opportunity for an efficient reallocation of intangible capital to productive firms that have low ability to generate it internally.