FI 9300
Seminar in Corporate Finance
J. Mack Robinson College of Business
Georgia State University
Fall 2005
Chip Ryan
1226 RCB
404-651-2674
fnchcr@langate.gsu.edu
Wednesdays 1:00 – 5:00
Finance Conference Room -- 1200
Office Hours:
By appointment
or drop by
Objectives: The objective of this course is to prepare doctoral students for research in corporate finance. In this
seminar, we will develop an integrated framework for understanding the issues in corporate finance for the purpose
of producing research that is publishable in high quality refereed academic journals. Generally, we will study
theoretical or conceptual papers on a given topic, with the focus on identifying empirically testable hypotheses.
We will then discuss one or more recent or seminal empirical papers on the subject.
Course Materials: Journal articles. You are responsible for obtaining copies of the articles. Try www.jstor.org
or Academic Search Premier on the library web site to get as many articles as possible on-line. Many of the
forthcoming articles will be available on journal web sites.
Reference Materials: You might find it useful to refer to an advanced Masters level/introductory Ph.D. level
corporate text. I recommend Financial Theory and Corporate Policy (Copeland and Weston, Third edition, 1988
Addison-Wesley) or the Fourth edition by Copeland, Weston, and Shastri. Additionally, you might find it useful to
refer to any edition of Principles of Corporate Finance (Brealey and Myers or Brealey, Myers, and Allen).
Grading: Your grade for the course will be determined as follows:
(i)
Presentations (25% of course grade) You must make at least four presentations of a paper (indicated by
#). You will be the instructor and should make a succinct presentation of assigned paper. All students in
the class should be prepared to participate in a rigorous discussion of the paper.
(ii)
Assignments (25% of course grade): The assignments can be problems, identification of research ideas,
literature surveys, reviews, or short articles. The focus will be on analysis, logic, and how well you convey
your ideas. Some assignments are on the syllabus, but others could be added during the term.
(iii)
Participation (25% of course grade): I expect you to have read and critiqued the assigned papers for a
session thoroughly before class. I will evaluate your participation based on the quality of your
contribution to class discussions. If the presenter makes a mistake, you should be familiar enough with the
papers to identify and help correct the mistake. Thorough preparation and participation in every class is
mandatory.
(iv)
Term Project (25% of course grade): The term project requires that you formulate and solve a specific
and original problem in corporate finance. You have to identify the problem yourself. I suggest that you
make an early start. The solution of the problem can be theoretical and/or empirical. The project will be
evaluated based on clarity of problem formulation, the technical competence of the solution, and how well
you express your ideas. Literature surveys do not constitute an acceptable term project. Some of you may
be pursuing a topic as a potential dissertation. Additional work on that topic may be acceptable as the
project if it is in the area of corporate finance or if it is amenable to an application of one of the techniques
covered in this seminar. You should clear your paper with me before choosing this route. Although I do not
require it, I encourage you to submit an abstract to me for feedback and approval of the topic by the middle
of the term.
2
Grading Scale
All grades will be assigned based on a 4 point scale: A (4), B (3), C (2), D (1), and F (0).
Final grades will be assigned as follows.
3.6 – 4.0
3.0-3.4
2.0-2.8
1.0-2.0
0.0-1.0
A
B
C
D
F
3.4-3.6
2.8-3.0
Gray Area
Gray Area
If you fall in the gray area, I will ask to see your notebook of paper summaries (see below). You will receive the
higher grade if your summaries are complete, logical, and in good order. If not, you will receive the lower grade.
Presentations
I will generally present and lead the discussion of the theory. Students will present related empirical papers. All
students must make at least four presentations.
Paper and Conceptual Summaries
For each paper market with *** and for the two topics under Pre-Reading you should write a written summary in
advance of the class in which the paper (or concept) is to be discussed. Your summary should (i) state the research
question (ii) indicate why it is important (iii) report key findings and conclusions (iv) provide a brief critique of the
paper and (v) outline any additional research ideas you identify. For individual papers, limit your summary to two
pages, type written, one-inch margins, and a minimum 10-point font. For summaries of conceptual topics spanning
multiple papers you may go up to five pages. Keep your summaries in a loose-leaf notebook, which you should
bring to all classes. The summaries will serve as a set of study notes when you prepare for the comprehensive
exams and as a quick reference to corporate finance literature when you pursue research. You should adhere to the
size limitation. The size limitation provides two important benefits: (i) it forces you to synthesize the material and
focus on the key issues (it redirects you from the trees back to the forest) and (ii) it helps you develop the ability to
write concisely and logically.
Academic Ethics
I will not tolerate cheating or plagiarism and will prosecute any offenses. I encourage you to discus and debate
ideas with your colleagues, but your written work must be your own ideas. Be careful not to plagiarize the work of
other. When you discuss ideas, explain concepts, or provide comments on assignments you “help” your friends.
When you allow your friend to copy your work, you are both academically dishonest and unethical. If you are not
sure if something is ethical, it probably is unethical. Don’t get in trouble – if in doubt, ask me.
3
Pre-course Reading
You should make sure, either by reading the articles listed below or by reading a textbook treatment, that you
understand the principles underlying the Tax and Bankruptcy-based theories of capital structure and the principle
of separation of financing and investing/unananimity. Prepare a summary of these two concepts for your notebook
(limit each summary to five pages or less).
Tax and Bankruptcy-based theories of capital structure
Copeland, Thomas E. and J. Fred Weston, Financial Theory and Corporate Policy, Third edition, 1988
(Addison-Wesley) 437-543
Franco Modigliani and Merton Miller, The cost of capital, corporation finance and the theory of
investment, American Economic Review, (1958), 261-297
Franco Modigiliani and Merton Miller, Corporate income taxes and the cost of capital, American
Economic Review, 53 (June 1963), 433-443
Merton Miller, Debt and Taxes, Journal of Finance, (1977), 261-275
Harry DeAngelo and Ronald Masulis, Optimal capital structure under corporate and personal taxation,
Journal of Financial Economics, 8 (1980),3-80
J. Scott, A theory of optimal capital structure, Bell Journal Of Economics, (1976), 33-54
Separation of financing and investing and unanimity – foundations of the positive NPV rule
Comment: Make sure that you understand the distinction between perfect and complete markets. Focus on
the ideas and don’t get lost in the math.
Copeland, Thomas E. and J. Fred Weston, Financial Theory and Corporate Policy, Third edition, 1988
(Addison-Wesley) 1-20; 109-128
J. Hirshleifer, Investment decision under uncertainty: Choice-theoretic approaches, Quarterly Journal of
Economics, (1965), 509-536
Steiner Ekern and Robert Wilson, On the theory of the firm in an economy with incomplete markets, Bell
Journal of Economics, 5 (1974), 171-180
N. C. Neilsen, The investment decision of the firm under uncertainty and the allocative efficiency of
capital markets, Journal of Finance, 31 (May 1976), 587-602
E. Fama, The effect of a firm’s investment and financing decisions on the welfare of its security holders,
American Economic Review, 68 (1978), 272-284
Reading Codes
****
#
S
Note:
Read thoroughly before class, be prepared to discuss for class, and summarize in one or two pages
Paper to be presented by a student (approximately 30 minute presentation to leave time for discussion)
I include other papers to provide you with an extensive reference list. Refer to these papers as necessary.
Survey Article – recommended background reading
You are responsible for knowing the field of corporate finance, and thus by extension all of these papers,
for the comprehensive exams.
The following paper is pretty useful in identifying recent developments in corporate finance.
Ritter, J. "Introduction to Recent Developments in Corporate Finance" May 2005, RitterFlyer.pdf
4
August 24
Empirical evidence on tax-based capital structure theories
***
R. Rajan and L. Zingales, What do we know about capital structure? Some evidence from international
data, Journal of Finance 50 (1995), 1421-1460
***
Sheridan Titman and Roberto Wessels, The determinants of capital structure choice, Journal of Finance 43
(March 1988), 1-40
*** #
Graham, John R., “How Big Are the Tax Benefits of Debt?,” Journal of Finance 55(5), October 2000,
1901-1941.
Graham, John R., Debt and the marginal tax rate, Journal of Financial Economics 41 (1995) 41-73
D. Givoly, C. Hayn, and A. Ofer, Taxes and capital structure: Evidence from firms’ response to the tax
reform act of 1986
Michael Bradley, Gregg Jarrell, and E. Han Kim, On the existence of an optimal capital structure: Theory
and evidence, Journal of Finance, 39 (July 1984)
J. Kale, T. Noe, and G. Ramirez, The effect of business risk on corporate capital structure: Theory and
evidence, Journal of Finance 46 (December 1991) 1693-1715
Graham, John R., Debt and the marginal tax rate, Journal of Financial Economics 41 (1995) 41-73
4. The importance of bankruptcy costs on capital structure
***
G. Andrade and S. Kaplan, How costly is financial (not economic) distress? Evidence from highly
leveraged transactions that become distressed, Journal of Finance 53 (1998) 1443-1493
***
R. Haugen and L. Senbet, The insignificance of bankruptcy costs to the theory of optimal capital structure,
Journal of Finance, 33 (1978), 383-393
*** #
Bris, Arturo, Ivo Welch, and Ning Zhu. The Costs of Bankruptcy The Journal of Finance, forthcoming.
[July 2005]
Weiss, Lawrence, Bankruptcy resolution - direct costs and violation of priority of claims, Journal of
Financial Economics, 27 (1990) 285-314
J. Ang, J. Chua, and J. McConnell, The administrative costs of bankruptcy: A note, Journal of Finance, 37
(1982) 219-226
E. Altman, A further empirical investigation of the bankruptcy cost question, Journal of Finance, 39
(1984) 1067-1089
J. Warner, Bankruptcy costs: Some evidence, Journal of Finance, 32 (1977) 337-347
August 31
6. Agency theory and the theory of the firm
***
M. Jensen and W. Meckling, Theory of the firm: Managerial behavior, agency costs and ownership
structure, Journal of Financial Economics, (1976), 305-360
***
E. Fama and M. Jensen, Separation of ownership and control, Journal of Law and Economics 26 (June
1983) 301-326
***
E. Fama and M. Jensen, Organizational forms and investment decisions, Journal of Financial Economics
(1985) 14 101-118
***
Jensen, Michael C., The modern industrial revolution, exit, and the failure of internal control systems,
Journal of Finance 48 (1993) 831-880
5
***
L. Zingales, In search of new foundations, Journal of Finance, 55 (2000), 1623-1653
***
R. Coase, The nature of the firm, Economica, 4 (1937), 386-405.
***
O. Hart and J. Moore, Property rights and the nature of the firm, Journal of Political Economy 98 (1990),
1119-1158.
E. Fama and M. Jensen, Agency problems and residual claims, Journal of Law and Economics 56 (1983)
327-349
E. Fama, Agency problems and the theory of the firm, Journal of Political Economy (1980) 88 288-307.
ASSIGNMENT: Based on the above reading list, write an essay of no more than five pages of text, doublespaced, on the topic “What is a firm?” Use relevant citations to support your logic. Due on August 31.
September 7
Agency theory explanations of capital structure and debt bonding
***
S. Myers, Determinants of Corporate Borrowing, Journal of Financial Economics, 5 (1977) 147-175.
***
M. Jensen, Agency costs of free cash flow, corporate finance and takeovers, American Economic Review
76, 1986, 323-329.
***
René Stulz, 1990, Managerial discretion and optimal financing policy, Journal of Financial Economics,
26, 3-27
S
M. Harris and A. Raviv, The theory of capital structure, Journal of Finance, 46 (1991), 297-355 (also
applies to information-based models)
S
M. Harris and A. Raviv, Errata: The theory of capital structure, Journal of Finance, 47 1992), 1659
O. Hart, and J. Moore, 1995, Debt and seniority: an analysis of the role of hard claims in constraining
management, American Economic Review, 85, 567-585
S. Grossman and O. Hart, 1982, Corporate financial structures and managerial incentives, in The
Economics of Information and Uncertainty, ed. J. McCall, University of Chicago Press, Chicago
A. Barnea, R. Haugen, and L. Senbet, Market imperfections, agency problems and capital structure: A
review, Financial Management 10 (1981), 7-22
Empirical evidence on agency theory explanations of capital structure and free cash flow
*** #
Parrino, Robert and Michael Weisbach, Measuring Investment Distortions Arising from StockholderBondholder Conflicts, Journal of Financial Economics, Vol. 53 (1999) 3-42
***#
S. Kaplan, The effects on management buyouts on operating performance and value, Journal of Financial
Economics, 24 (1989) 217-254
K. Lehn and A. Poulsen, Free cash flow and stockholder gains in going private transactions, Journal of
Finance, 44 (1989) 771-788
W. Mikkelson and M. Partch, Managers’ voting rights and corporate control, Journal of Financial
Economics, 25 (1989) 263-290
H. Demsetz and K. Lehn, The structure of corporate ownership: Causes and consequences, Journal of
Political Economy, 93 (1985) 1155-1177
6
A. Agrawal and G. Mandelker, Managerial incentives and corporate investment and financing decisions,
Journal of Finance, 42 (1987), 823-837
S. Smith and J. Warner, On financial contracting: An analysis of bond covenants, Journal of Financial
Economics, 7 (1979), 117-161
ASSIGNMENT : You must do this assignment twice and in conjunction with another student. I will allow
you to form your own two-person teams, but will become involved if necessary to produce a sufficient
number of pairs. On a topic of your choice in corporate finance, write a research proposal. The proposal
should outline the research question, review the relevant literature, describe the importance of the research
and what we will learn, and describe the research approach. You must include at least three working
papers in your reference list. The working papers must (i) be from a researcher with multiple top-tier
publications or (ii) have been presented or be scheduled for presentation at the ASSA, the WFA, the
European Finance Association, the NBER, or some other high-quality conference (only at the FMA or a
regional conference does not count).
Proposal 1 is due on October 5
Proposal 2 is due on November 2.
September 14
A Primer on asymmetric information models
***
G. Akerlof, The market for “lemons”: Quality, uncertainty, and the market mechanism, Quarterly Journal
of Economics 89 (1970), 488-500
***
M. Spence, Job market signaling, Quarterly Journal of Economics 87, (1973), 355-79
Thakor, A., Game theory in finance, Financial Management, 20 (1) (1991), 71-94
Signaling models of capital structure
***
H. Leland and D. Pyle, Informational asymmetries, financial structure and financial intermediation,
Journal of Finance, 32 (1977), 371-87.
S. Ross, The determination of financial structure: The incentive signalling approach, Bell Journal of
Economics 8 (Spring 1977), 23-40. (subject of the Thakor article above)
Timing theories and evidence
K. Jung, Y Kim, and R. Stulz, Timing, investment opportunities, managerial discretion, and the security
design issue, Journal of Financial Economics 42, (1996) 159-186
Baker, Malcolm , Greenwood, Robin, and Wurgler, Jeffrey, The maturity of debt issues and predictable
variation in bond returns, Journal of Financial Economics70 (2003) 261-291
*** #
Baker, Malcolm, and Jeffrey Wurgler. "Market Timing and Capital Structure." Journal of Finance 57
(February 2002): 1-32.
*** #
M. Leary and M. Roberts, Do Firms Rebalance their Capital Structures? The Journal of Finance,
forthcoming, December 2005.
7
September 21
Product market interactions with corporate financing decisions
***
J. Brander and T. Lewis, Oligopoly and financial structure: The limited liability effect, American
Economic Review, 76 (1986), 956-970.
***
Titman, S., 1984. The Effect of Capital Structure on a Firm's Liquidation Decision. Journal of
Financial Economics 13, 137-151.
***
Maksimovic, Vojislav and Sheidan Titman, Financial policy and reputation for product quality, Review of
Financial Studies, 4 (1991) 175-200
***#
MacKay, P., and G. Phillips. 2004. How Does Industry Affect Firm Financial Structure? Click here to
download in Adobe PDF Format. Forthcoming Review of Financial Studies
***#
Kale, J. and H. Shahrur. 2005. Capital structure and characteristics of supplier and customer markets,
working paper.
***
Campello, M. Capital structure and product markets interactions: Evidence from business cycles, Journal
of Financial Economics 68 (2003) 353-378
J. Chevalier, Capital structure and product market competition: Empirical evidence from the supermarket
industry, American Economic Review, 85 (1995), 415-435.
J. Chevalier, Do LBO supermarkets charge more? An empirical analysis of the effects of LBOs on
supermarket pricing, Journal of Finance 4 (1995) 1095-1112
Sundaram, Anant, Teresa A. John, and Kose John, An empirical analysis of strategic competition and firm
values: The case of R&D competition, Journal of Financial Economics 40 (1996) 459-486
Phillips, Gordon M., Increased debt and industry product markets: An empirical analysis, Journal of
Financial Economics 37 (1995) 189-238
Kovenock, Dan and Gordon Phillips, Capital structure and product market behavior: An examination of
plant exit and investment decisions, Review of Financial Studies, 10 (1997) 767-803
September 28
Pecking order models of capital structure*
***
S. Myers and N. Majluf, corporate financing and investment decisions when firms have information that
investors do not have, Journal of Financial Economics, 13, (1984), 187-221
***
S. Myers, The capital structure puzzle, Journal of Finance, 39 (1984), 575-592
***
Thomas H. Noe, Capital structure and signaling game equilibria, Review of Financial Studies, 1 (Winter
1988), 331-356
Empirical evidence on pecking order theories**
*** #
Frank, Murray and Vidhan Goyal, Testing the Pecking Order Theory of Capital Structure, Journal of Financial
Economics 67(2), February 2003, 217-248.
*** #
Fama, Eugene and Kenneth R. French, Testing Tradeoff and Pecking Order Predictions about Dividends and
Debt, Review of Financial Studies, 15 (2002) 1-33
***
Lakshmi, Shyam-Sunder and Stewart C. Myers, Testing static trade-off against pecking order models of capital
structure, Journal of Financial Economics 51 (1999) 219-244
W. Mikkelson and M. Partch, Valuation effects of security offerings and the issuance process, Journal of
Financial Economics 15, (1986), 31-60
8
C. Smith, Investment banking and the capital acquisition process, Journal of Financial Economics 15,
(1986) 3-29
J. Helwege and N. Liang, Is there a pecking order? Evidence from a panel of IPO firms, Journal of
Financial Economics 40, (1996), 429-458
October 5
Payout policy theories
***
M. Miller and K. Rock, Dividend policy under asymmetric information, Journal of Finance, 40 (1985),
1031-51
***
F. Allen, A. Bernardo and I. Welch, A theory of dividends based on tax clienteles, Journal of Finance, 55
(2000) 2499-2536
S
Black, Fischer, The dividend puzzle, Journal of Portfolio Management (1976) 5-8
***
K. John and J. Williams, Dividends, dilution, and taxes: A signalling equilibrium, Journal of Finance 40
(1985), 1053-70
M. Miller and F. Modigiliani, Dividend policy, growth, and valuation of shares, Journal of Business
(October 1961) 34 411-433
P. Kumar, Shareholder-manager conflict and the information content of dividends, Review of Financial
Studies (1988) 1, 111-136
S. Bhattacharya, Imperfect information, dividend policy and the “bird in the hand” fallacy, Bell Journal of
Economics 10, (1979), 259-270
J. Kale and T. Noe, Dividends, uncertainty, and underwriting costs under asymmetric information, Journal
of Financial Research, (1990) 4, 265-277
Empirical evidence on dividend policy and share repurchase
*** #
Fama, E. and K. French (2001) Disappearing dividends: Changing firm characteristics or lower propensity
to pay? Journal of Financial Economics, 60, 3-43.
*** #
Stephens, C., Jagannathan, and M. Weisbach (2000) Financial flexibility and the choice between dividends
and stock repurchases, Journal of Financial Economics, Vol. 57 355-384.
Stephens, C. and M. Weisbach (1998) Actual share reacquisitions in open-market repurchase programs,
Journal of Finance, 53, 313-333.
Guay, Wayne and Jarrad Harford, The cash-flow permanence and information content of dividend
increases versus repurchases, Journal of Financial Economics 57 (2000) 385-415
J. Aharony and I. Swary, Quarterly dividend and earnings announcements and stockholders’ return: An
empirical analysis, Journal of Finance 35 (1980), 1-12
M. Rozeff, Growth, beta, and agency costs as determinants of dividend payout ratios, Journal of Financial
Research (Fall 1982) 5 249-259
P. Asquith and D. Mullins, Jr., The impact of initiating dividend payments on shareholders’ wealth,
Journal of Business (1982) 56, 27-44
P. Healy and K. Palepu, Earnings information coveyed by dividend initiations and omissions, Journal of
Financial Economics (1988) 21, 149-176
K. Eades, Empirical evidence on dividends as a signal of firm quality, Journal of Financial and
Quantitative Analysis (1982) 17, 471-502
P. C. Venkatesh, The impact of dividend intitiation on the information content of earnings announcements
and return volatility, Journal of Business (1989) 46, 191-211
9
F. Easterbrook, Two agency-cost explanations of dividends, American Economic Review, 74 (1984), 650659
T. Vermaelen, Common stock repurchases and market signalling: An empirical study, Journal of Financial
Economics 9 (1981) 138-183
T. Vermaelen, Repurchase tender offers, signalling and managerial incentives, Journal of Financial and
Quantitative Analysis 19 (1984) 163-181
R. Comment and G. Jarrell, The relative signalling power of Dutch-auction and fixed-price self tender
offers and open –market share repurchases, Journal of Finance 46 (September 1991)
Denis, David J. Diane K. Denis, and A. Sarin, The information content of dividend changes: Cash flow
signaling, overinvestment, and dividend clienteles, Journal of Financial and Quantitative Analysis 29
(1994) 567-587.
ASSIGNMENT : You must do this assignment twice and in conjunction with another student. I will allow
you to form your own two-person teams, but will become involved if necessary to produce a sufficient
number of pairs. On a topic of your choice in corporate finance, write a research proposal. The proposal
should outline the research question, review the relevant literature, describe the importance of the research
and what we will learn, and describe the research approach.
Paper for review, due October 19, will be distributed.
Proposal 1 is due.
October 12
The Going-Public Decision and Venture Capital
***
Zingales, L., 1995. Inside ownership and the decision to go public. Review of Economic Studies, 62 425448.
***#
P. Gompers and J. Lerner, Money chasing deals? The impact of fund inflows on private equity valuations,
Journal of Financial Economics, 55 (2000) 281-325
***#
Pagano, M., F. Panetta, and L. Zingales (1998) Why do companies go public? An empirical analysis.
Journal of Finance, 53 27-64.
***#
Gompers, P., Lener, J., and Sharfstein, D., 2005. Entrepreneurial spawning: Public corporations and the
genesis of new ventures. 1986-1999, Journal of Finance, forthcoming.
http://www.people.hbs.edu/dscharfstein/spawnersfinal.pdf
***
Kaplan, Steven N.; Strömberg, Per., Financial Contracting Theory Meets the Real World: An Empirical
Analysis of Venture Capital Contracts. Review of Economic Studies, Apr 2003, Vol. 70 Issue 2, p281
T. Chemmanur and P. Fulghieri, A theory of the going-public decision, Review of Financial Studies, 12
(1999) 249-279
J. Lerner, Venture capitalists and the decision to go public, Journal of Financial Economics, 45 (1994)
293-316
J. Lerner, Venture capitalists and the oversight of private firms, Journal of Finance, 50 (1995) 301-318.
P. Gompers and J. Lerner, Conflict of interest in the issuance of public securities: Evidence from venture
capital, Journal of Law and Economics, 42 (1999) 1-28
P. Gompers and J. Lerner, An analysis of compensation in the US venture capital partnership, Journal of
Financial Economics, 51 (1999) 3-44
10
P. Gompers and J. Lerner, Venture capital distributions: Short-run and long-run reactions, Journal of
Finance, 53 (1998) 2161-2183
P. Gompers, Grandstanding in the venture capital industry, Journal of Financial Economics, 42 (1996)
133-156
P. Gompers, Optimal investment, monitoring, and the staging of venture capital, Journal of Finance, 50
(1995) 133-156
M. Kim and J. Ritter, Valuing IPOs, Journal of Financial Economics, 53 (1999) 409-437
C. Barry, C. Muscarella, J. Peavy III, and M. Vetsuypens, The role of venture capital in the creation of
public companies: Evidence from the going-public process, Journal of Financial Economics, 27 (1990)
447-471
B. Black and R. Gilson, Venture capital and the structure of capital markets: banks versus stock markets,
Journal of Financial Economics, 47 (1998) 243-277
A. Gande, M. Puri, and A. Saunders, Bank entry, competition and the market for corporate securities
underwriting, Journal of Financial Economics, 54 (1999) 165-195
M. Puri, Commercial banks as underwriters: Implications for the going public process, Journal of
Financial Economics, 54 (1999) 133-163
October 19
Initial Public Offerings -- Theory
***
Allen, Franklin and Gerald R. Faulhaber, Signaling by underpricing in the IPO market, Journal of
Financial Economics 23 (1989), 303-323
***
Rock, Kevin, Why new issues are underpriced, Journal of Financial Economics 15 (1986), 187-212
***
Benveniste, Lawrence M. and Paul A. Spindt, How investment bankers determine the offer price and
allocation of new issues, Journal of Financial Economics 24 (1989), 343-361
S
Ritter, J., "Investment Banking and Securities Issuance," Chapter 5 of North-Holland Handbook of
theEconomics of Finance edited by George Constantinides, Milton Harris, and René Stulz, (2003).
Baron, David P., A model of the demand for investment banking advising and distribution services for new
issues, Journal of Finance 37 (1982), 955-976
Grinblatt, M. and C. Y. Hwang, 1989, Signaling and the pricing of new issues, Journal of Finance 44
(1989), 393-420
Welch, Ivo, Seasoned offerings, imitation costs, and underpricing of initial public offerings, Journal of
Finance 44 (1989), 421-449
Chemmanur, T.J., and P. Fulghieri. "Investment Bank Reputation, Information Production, and Financial
Intermediation," Journal of Finance, 49 (1994), 57-79.
Initial Public Offerings -- Empirical Papers
*** #
A. Ljungqvist, and W. Wilhelm, IPO allocations: Discriminatory or discretionary?, Journal of Financial
Economics, 65 (2002) 167-201
***#
Gompers, Paul A., and Josh Lerner. "The Really Long-Run Performance of Initial Public Offerings: The
Pre-Nasdaq Evidence." Journal of Finance 58, no. 4 (August 2003).
***
T. Loughran and J. Ritter, The new issues puzzle, Journal of Finance, 50 (1995) 23-51.
***
T. Loughran and J. Ritter, Why don’t issuers get upset about leaving money on the table in IPOS?, Review
of Financial Studies, 15 (2002) 413-443. and discussion by K. Daniel, 445-454
11
K. Hanley, The underpricing of initial public offerings and the partial adjustment phenomenon, Journal of
Financial Economics, 34 (1993), 231-250
L. Krigman, W. Shaw and K. Womack, The persistence of IPO mispricing and the predictive power of
flipping, Journal of Finance, 54 (1998) 1015-1044
Rajan, Raghuram and Henri Servaes, Analyst following if initial public offerings, Journal of Finance 52
(1997) 507-529
J. Ritter, The long-run performance of initial public offerings, Journal of Finance, 46 (1991) 3-27.
W. Megginson and K. Weiss, Venture capitalist certification in initial public offerings, Journal of Finance,
46 (1991) 879-903
R. Carter and S. Manaster, Initial public offerings and underwriter reputation, Journal of Finance, 45
(1990), 1045-1067
R. Beatty and J. Ritter, 1986, Investment banking, reputation, and the underpricing of initial public
offerings, Journal of Financial Economics 15, 213-232
R. Michaely and W. Shaw, The pricing of initial public offerings: Tests of adverse selection and signaling
theories, Review of Financial Studies, 7 (1994), 279-320
R. Carter, F. Dark, and A. Singh, Underwriter reputation, initial returns, and the long-run performance of
IPO stocks, Journal of Finance, 53 (1998), 285-312
R. Beatty and I. Welch, Issuer Expenses and Legal Liability in Initial Public Offerings, Journal of Law and
Economics 44 (1996), 545-595
D. Logue, On the pricing of unseasoned equity issues: 1965-1969, Journal of Financial and Quantitative
Analysis, 8 (1973), 91-103
R. Ibbotson, Price performance of common stock new issues, Journal of Financial Economics, 2 (1975)
235-272
C. Muscarella, and M. Vetsuypens, The underpricing of ‘second’ initial public offerings, Journal of
Financial Research, 3 (1989), 183-192
J. Ritter, The ‘hot’ issue market of 1980, Journal of Business 32 (1984), 215-240
N. Jegadeesh, M. Weinstein, and I. Welch, An empirical examination of seasoned equity offerings and IPO
underpricing, Journal of Financial Economics, 34(1993), 153-175
S. Tinic, Anatomy of initial public offering of common stock, Journal of Finance, 43 (1988) 789-822
F. Koh and T. Walter, A direct test of Rock’s model of the pricing of unseasoned issues, Journal of
Financial Economics, 23 (1989) 251-272
ASSIGNMENT: Review paper assigned on October 5 is due.
Paper for review, due November 16, will be distributed.
October 26
Corporate takeovers and mergers
***
Grossman, S., and O. Hart, Takeover bids, the free rider problem, and the theory of the corporation, Bell
Journal of Economics 11 (1980), 42-64
***
Holmstrôm, B., and B. Nalebuff, To the raider goes the surplus? A reexamination of the free-rider
problem, Journal of Economics & Management Strategy 1 (1992), 37-62
12
M. Bagnoli and B. Lipman, Successful takeovers without exclusion, Review of Financial Studies 1 (Spring
1988), 89-110.
Empirical evidence on mergers and acquisitions
*** #
Schwert, G.W. Hostility in Takeovers: In the Eyes of the Beholder? Journal of Finance, 55 (2000), 25992640
***
Kale, Jayant R., Omesh Kini, and Harley E. Ryan, Jr., Financial advisors and wealth gains in corporate
takeovers, Journal of Financial and Quantitative Analysis (2002) Vol. 38, No. 3 475-501
***
Jensen, Michael C., Takeovers: Their Causes and Consequences, Journal of Economic Perspectives, 2
(1988), 21-48.
S
M. Jensen and R. Ruback, The market for corporate control: The scientific evidence, Journal of Financial
Economics, 11 (1983) 5-50
S
Jarrell, Gregg A., James A. Brickley and Jeffry M, Netter, The market for corporate control: The empricial
evidence since 1980 Journal of Economic Perspectives 2 (1988) 49-68.
Mitchell, M., and K. Lehn, 1990. Do bad bidders make good targets? Journal of Political Economy, 98
372-398.
Rau, P.R. Investment Bank Market Share, Contingent Fee Payments, and the Performance of Acquiring
Firms," Journal of Financial Economics, 56 (2000), 293-324
Roll, R. The Hubris Hypothesis of Corporate Takeovers, Journal of Business, 59 (1986), 197-216
Schwert, G.W. Markup Pricing in Mergers and Acquisitions, Journal of Financial Economics, 41 (1996),
153-192
Servaes, H., and M. Zenner. The Role of Investment Banks in Acquisitions, Review of Financial Studies, 9
(1996), 787-816.
M. Bradley, A. Desai, and H. Kim, The rationale behind interfirm tender offers: Information or synergy?
Journal of Financial Economics, 11 (1983) 141-153
M. Bradley, A. Desai, and H. Kim, Synergistic gains from corporate acquisitions and their division
between the stockholders of target and acquiring firms, Journal of Financial Economics, 21 (1988) 3-40
P. Healy, K. Palepu, and R. Ruback, Does corporate performance improve after mergers? Journal of
Financial Economics, 31 (1992), 135-178
J. Franks, R. Harris, and S., Titman, The postmerger share-price performance of acquiring firms, Journal
of Financial Economics, 29 (1991), 81-96
M. Mitchell and K. Lehn, Do bad bidders become good targets? Journal of Political Economy, 98 (1990)
372-398
November 2
Corporate control and governance
***
Hermalin, Benjamin and Michael Weisbach, Endogenously chosen boards of directors and their
monitoring of the CEO, American Economic Review 88 (1998) 96-118.
*** #
Shivdasani, Anil and David Yermack, CEO involvement in the selection of new board members, Journal
of Finance 54 (1999) 1829-1853
*** #
Dahya, J., J. McConnell, and N. G. Travlos, The Cadbury Committee, Corporate Performance, and Top
Management Turnover, Journal of Finance, 57 (2002) 461-483
***
Cotter, James, Anil Shivdasani, and Marc Zenner, Do independent directors enhance target shareholder
wealth during tender offers? Journal of Financial Economics 43 (1997) 195-218
13
***
Ryan, H. and R. Wiggins, Who is in whose pocket? Director compensation, board independence, and
barriers to effective monitoring, Journal of Financial Economics 73 (2004) 497-524.
***
Hermalin, B., and M. Weisbach, Boards of directors as and engogenously-determined institution: A survey
of the economic evidence, Economic Policy Review, 9.
S
A. Shleifer and R. Vishny, A survey of corporate governance, Journal of Finance, 52 (1997) 737-783
Hermalin, Benjamin and Michael Weisbach, The determinants of board composition, Rand Journal of
Economics, 19 (1988) 589-606
Weisbach, Michael, Outside directors and CEO turnover, Journal of Financial Economics 20 (1988) 431460.
D. Yermack, Higher market valuation of companies with a small board of directors, Journal of Financial
Economics, 40 (1996) 185-212
K. Lehn, J. Netter and A. Poulsen, Consolidating corporate control: Dual-class recapitalization versus
leveraged buyouts, Journal of Financial Economics, 27 (1990) 557-580
A. Shleifer and R. Vishny, Large shareholders and corporate control, Journal of Political Economy.
94(1986) 461-488.
J. Brickley, R. Lease, and C. Smith, Ownership structure and voting on antitakeover amendments, Journal
of Financial Economics, 20 (1988) 267-291
Brickley, J., J. Coles, and G. Jarrell, Leadership structure: Separating the CEO and Chairman of the Board,
Journal of Corporate Finance 3 (1997) 189-220
S. Gillan and L. Starks, Corporate governance proposals and shareholder activism: the role of institutional
ivnestors, Journal of Financial Economics, 57 (2000) 275-305
Proposal 2 is due.
November 9
Corporate control and governance
*** #
Field, Laura Casares and Jonathon M. Karpoff, Takeover defenses at IPO firms Journal of Finance (2002)
October, 1857-1889.
***
R. Comment and G. W. Schwert, Poison or placebo? Evidence on the deterrence and wealth effects of
modern antitakeover measures, Journal of Financial Economics, 39 (1995) 3-43
*** #
Denis, David J. Diane K. Denis, and A. Sarin, Ownership structure and top executive turnover, Journal of
Financial Economics 45 (1997) 193-221
***
J. McConnell and H. Servaes, Additional evidence on equity ownership and corporate value, Journal of
Financial Economics, 27 (1990) 595-612
***#
Gompers, P., J. L. Ishii, and A..Metrick. "Corporate Governance and Equity Prices." Quarterly
Journal of Economics (February 2003) Corporate Governance and Equity Prices,
Cho, M., Ownership structure, investment, and the corporate value: An empirical analysis, Journal of
Financial Economics 47 (1998) 103-121.
J. Brickley, J. Coles, and R. Terry, Outside directors and the adoption of poison pills, Journal of Financial
Economics, 35 (1994) 371-390
14
Hirshleifer, David and Anjan Thakor, Managerial performance, boards of directors and takeover bidding,
Journal of Corporate Finance 1 (1994) 63-90.
Kini, Omesh, William Krakaw, and Shehzad Mian, Corporate takeovers, firm performance, and board
composition, Journal of Corporate Finance 1 (1995) 383-412,
R. Stulz, Managerial control of voting rights: Financing policies and the market for corporate control,
Journal of Financial Economics, 20 (1988) 25-54
R. Morck, A. Shleifer, and R. Vishny, Management ownership and market valuation: An empirical
analysis, Journal of Financial Economics, 20 (1988), 293-316
ASSIGNMENT: Review of paper assigned on October 19 is due.
November 16
***
M. Jensen and K. Murphy, Performance pay and top management incentives, Journal of Political
Economy, 98 (1990), 225-264
***
B. Holmstrom, Moral hazard and observability, Bell Journal of Economics, 10 (1979) 74-91
Shavell, S., Risk sharing and incentives in the principle and agent relation, Bell Journal of Economics, 10
(1979) 55-73
*** #
Core, J.E. and W. Guay, Stock option plans for non-executive employees, Journal of Financial Economics
57 (2001) 129-154
***#
Bertrand, M., and Mullainathan, S., Are CEOs rewarded for luck? The ones without principals are.
Quarterly Journal of Economics, August 2001, 901-932.
***#
Rajgopal, S., Shevlin, T., and Valentina, Z., CEOs’ Outside Employment Opportunities and the Lack of
Relative Performance Evaluation in Compensation Contracts, Journal of Finance, forthcoming
***
Core, J., and W. Guay, 2002, Estimating the value of employee stock option portfolios and their
sensitivities to price and volatility, Journal of Accounting Research 40, 613-630.
Mehran, H, Executive compensation structure, ownership, and firm performance, Journal of Financial
Economics, 38 (1995) 163-184
Meulbroek, L., The efficiency of equity-linked compensation: Understanding the full cost of awarding
executive stock options, Financial Management 30 (2001) 5-44
Smith, C. and R. Watts, The investment opportunity set and corporate financing, dividend and
compensation policies, Journal of Financial Economics, 31 (1992) 263-292
Bizjak, J., J. Brickley and J. Coles, 1993, Stock-based incentive compensation and investment behavior,
Journal of Accounting and Economics, 16 (1993) 349-372
Gaver, J. and K. Gaver, Additional evidence on the association between the investment opportunity set and
corporate financing, dividend, and compensation policies, Journal of Accounting and Economics, 16
(1993) 125-160.
Ryan, Harley and Roy Wiggins, The influence of firm- and manager-specific characteristics on the
structure of executive compensation, Journal of Corporate Finance 7 (2001) 101-123
Ryan, Harley and Roy Wiggins, The interactions between R&D investment decisions and compensation
policy, Financial Management 7 (2002) 5-29
15
Johnson, Shane and Yisong S. Tian, The value and incentive effects of nontraditional executive stock
option plans, Journal of Financial Economics (2000) 3-34
Johnson, Shane and Yisong S. Tian, Indexed stock options, Journal of Financial Economics (2000) 35-64
Bryan, S., L. Hwang, and S. Lilien, “CEO Stock-based Compensation: An Empirical Analysis of IncentiveIntensity, Relative Mix, and Economic Determinants," Journal of Business 73 (2000), 661-693.
November 23
Executive compensation
***
Acharya, Viral V., Kose John, and Rangarajan K. Sundaram, On the optimality of resetting executive stock
options, Journal of Financial Economics 57 (2000) 65-101
*** #
Chidambaran, N.K., and Prabhala, Nagpurnanand, Executive stock option repricing, internal governance
mechanisms, and management turnover, forthcoming in the Journal of Financial Economics (2002)
***#
Yermack, D., Flights of Fancy: Corporate jets, CEO perquisites, and inferior shareholder returns, Journal
of Financial Economics, forthcoming. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=529822
***
Johnson, S., Ryan, H., and Tian, Y., Executive compensation and corporate fraud, working paper.
***
Hall, B., and K. Murphy, 2003. The trouble with stock options. Journal of Economic Perspectives, 17 4970.
***
Bebchuk, L., and J. Fried, 2003. Executive compensation as an agency problem. Journal of Economic
Perspectives, 17 71-92
Yermack, D., Do corporations award CEO stock options effectively? Journal of Financial Economics, 39
(1995) 237-269
Carter, M.E., and L.J. Lynch, 2001, An examination of executive stock option repricing, Journal of
Financial Economics 61 (2001) 207-225
Carpenter, J. N., The exercise and valuation of executive stock options, Journal of Financial Economics
(48) (1998) 127-158
Carpenter, J. N., 2000, Does option compensation increase managerial risk appetite? Journal of Finance 55
(2000) 2311-2331
Mehran, H, Executive compensation structure, ownership, and firm performance, Journal of Financial
Economics, 38 (1995) 163-184
Meulbroek, L., The efficiency of equity-linked compensation: Understanding the full cost of awarding
executive stock options, Financial Management 30 (2001) 5-44
Smith, C. and R. Watts, The investment opportunity set and corporate financing, dividend and
compensation policies, Journal of Financial Economics, 31 (1992) 263-292
Bizjak, J., J. Brickley and J. Coles, 1993, Stock-based incentive compensation and investment behavior,
Journal of Accounting and Economics, 16 (1993) 349-372
Gaver, J. and K. Gaver, Additional evidence on the association between the investment opportunity set and
corporate financing, dividend, and compensation policies, Journal of Accounting and Economics, 16
(1993) 125-160.
Ryan, Harley and Roy Wiggins, The influence of firm- and manager-specific characteristics on the
structure of executive compensation, Journal of Corporate Finance 7 (2001) 101-123
Ryan, Harley and Roy Wiggins, The interactions between R&D investment decisions and compensation
policy, Financial Management 7 (2002) 5-29
16
Johnson, Shane and Yisong S. Tian, The value and incentive effects of nontraditional executive stock
option plans, Journal of Financial Economics (2000) 3-34
Johnson, Shane and Yisong S. Tian, Indexed stock options, Journal of Financial Economics (2000) 35-64
Bryan, S., L. Hwang, and S. Lilien, “CEO Stock-based Compensation: An Empirical Analysis of IncentiveIntensity, Relative Mix, and Economic Determinants," Journal of Business 73 (2000), 661-693.
November 30
Corporate focus and internal capital markets
*** #
Graham, John R., Michael Lemmon, and Jack Wolf, Does Corporate Diversification Destroy Value?,
Journal of Finance 57 (2002) 695-720.
*** #
Lamont, Owen A. amd Christopher Polk, Does diversification destroy value? Evidence from the industry
shocks, Journal of Financial Economics 63 (2002) 51-78
*** #
Desai, M, Foley, C. and Hines, Jr. A Multinational Perspective on Capital Structure Choice and Internal
Capital Markets, forthcomeing in the Journal of Finance, Decmber 2004
***
P. Berger and E. Ofek, Diversification’s effect on firm value, Journal of Financial Economics, 37 (1995)
39-65
***
J. Stein, Internal capital markets and the competition for corporate resources, Journal of Finance, 52
(1997) 111-133.
R. Comment and G. Jarrell, Corporate focus and stock returns, Journal of Financial Economics, 37 (1995)
67-87
O. Lamont, Cash flow and investments: evidence from internal capital markets, Journal of Finance, 52
(1997) 83-109
D. Denis, D. Denis and A. Sarin, Agency problems, equity ownership, and corporate diversification,
Journal of Finance, 52 (1997) 135-160
D. Sharfstein and J. Stein, The dark side of internal capital markets: Divisional rent-seeking and efficient
investment, Journal of Finance, 55 (forthcoming December 2000)
H. Servaes, The value of divdersification during the conglomerate merger wave, Journal of Finance, 51
(1996) 1201-1225
K. John and E. Ofek, Asset sales and increase in focus, Journal of Financial Economics 37 (1995) 105-126
December 7
The Resolution of Financial Distrss
*** #
E. Hotchkiss, Postbankruptcy performance and management turnover, Journal of Finance, 50 (1995) 3-21
*** #
Gilson, S., Transaction costs and capital structure choice: evidence from financially distressed firms.
Journal of Finance 52 (1997) 161-196.
*** #
Pulvino, T. (1998) “Do Asset Fire Sales Exist? An Empirical Investigation of Commercial Aircraft
Transactions,” Journal of Finance, 53, 939-978.
***
E. Hotchkiss and R. Mooradian, Vulture investors and the market for control of distressed firms, Journal
of Financial Economics, 43 (1997) 401-432
Mooradian, R. and H. Ryan, Out-of-Court Restructurings and the Resolution of Financial Distress: Section
3(a)(9) Compared to Investment Bank Managed Exchange Offers, Journal of Business (2005)
17
J. Franks and W. Torous, An empirical investigation of U.S. firms in reorganization, Journal of Finance,
44 (1989) 474-498
J. Franks and W. Torous, A comparison of financial recontractring in distressed eschanges and Chapter 11
reorganizations, Journal of Financial Economics, 35 (1994) 349-370
R. Giammarino, The resolution of financial distress, Review of Financial Studies, 2 (1989) 25-47
R. Gertner, and D. Scharfstein, A theory of workouts and the effects of reorganization law, Journal of
Finance, 46 (1991), 1189-1222
Asquith, P.; Gertner R.; and Scharfstein D. Anatomy of financial distress: An examination of junk bond
issuers. Quarterly Journal of Economics 109 (1994) 625-634
D. Brown, C. James, and R. Mooradian, The information content of distressed restructurings involving
public and private debt claims, Journal of Financial Economics, 33 (1991), 93-118
R. Mooradian, The effect of bankruptcy protection on investment, Chapter 11 as a screening device,
Journal of Finance, 49 (1994) 1403-1430
S. Gilson, Bankruptcy, boards and blockholders – Evidence on changes in corporate ownership and control
when firms default, Journal of Financial Economics 27 (1990) 335-353
S. Gilson, Management turnover and financial distress, Journal of Financial Economics, 25 (1989) 241262
S. Gilson, K. John, and L. Lang, Troubled debt restructuring: An empirical study of private reorganization
of firms in default, Journal of Financial Economics, 27b (1990) 315-353
December 14
Term Paper is due at 12:00 noon.
Note: Corporate finance is a very broad area and this list of papers, although lengthy, is not exhaustive.
We may have to add papers as the course progresses, and we may not cover all papers on this list. We also
may have to reschedule some topics as the course progresses. Some papers have relevance to more than one
area, but to avoid redundancy, papers are only listed once. You should read all papers regardless of
whether they are discussed in class.
Note: This syllabus is a general guideline. Changes to the syllabus may be necessary.