Monetary policy, R&D investment, and test of corporate capital structure theory

This dissertation consists of three chapters on monetary policy, R&D investment, and test of corporate capital structure theory. In the first chapter, I examine the impact of large-scale asset purchases (LSAPs) on corporate financing and investment. I find that LSAPs increased corporate financing and shifted the corporate financing pattern towards greater equity financing. Specifically, LSAPs enabled noninvestment-grade firms to issue more public equity and allowed investment-grade firms to issue more bonds. I find that LSAPs also affected the stock market through the portfolio balance channel. With the reversal of flight to quality, noninvestment-grade firms enjoyed significantly higher stock returns than investment-grade firms. After raising capital, public equity issuers used these proceeds to avoid bankruptcy, whereas debt issuers used the funds to expand their businesses. Therefore, unlike traditional monetary policy tools that affect bank lending, LSAPs stimulate the real economy by spurring the stock and bond markets and thereby providing firms with alternative sources of financing. In the second chapter, I attempt to differentiate demand-side reasons from supply-side reasons for firms with higher R&D investment to have a lower leverage. I use two identification events to test their different predictions, the introduction of state-level R&D tax credits and the grant of patents. Because state R&D tax credits increase R&D investment by firms headquartered in the state, I use their introduction to examine whether supply-side frictions affect corporate financing choices to finance R&D investment. I find that constrained firms issue more equity and have a lower leverage after their introduction, whereas unconstrained firms do not, which suggests that supply-side frictions force firms to issue equity to fund innovation. Because patents can partially relieve credit constraints, I use the grant of patents to analyze whether firms change their leverage after credit constraints are lessened. ...