My dissertation focuses on the effect of financial market frictions on firm value in the context of corporate mergers, capital structure and growth. The first chapter explores how financing frictions faced by potential buyers of industry specific real assets affect the transaction value of merger targets that consist of such assets. I find that shareholders of target firms with highly specialized assets receive a significantly smaller premium than targets with generic assets when industry peer firms are financially constrained. Further investigation reveals that firms with specialized assets reduce leverage more than other firms when the risk of liquidation loss is high. The second chapter explores how frictions in the financial market affect corporate capital structure and growth. I present evidence that firms that have experienced financing frictions prior to entering the public debt market undergo significant changes in capital structure and investment as they gain access to the new sources of capital. Overall, the findings in this dissertation highlight the importance of financing frictions as key determinants of capital structure and firm value.
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