The course will consist of three general topic areas. The first part of the class will examine selected applied econometric topics that are useful in empirical accounting research. Each of these topics will be illustrated using contemporary examples from accounting, economics, and finance. The second part of the class will cover some of the basic theoretical work in moral hazard agency models and various extensions to this type of research. The final part of the course will discuss the empirical literature on corporate governance and executive compensation.
The course will be taught in a seminar style and students will present most of the papers.
Each student is expected to have read the assigned material and be prepared to describe and critique the papers.
Students will be evaluated based on their class discussion and presentations (50%) and development of various research projects on the topics covered in the class (50%).
The course is meant to provide an overview of each topic area. For the research project, the students should expand their reading well beyond the articles covered in class.
Papers marked with an asterisk (*) are the primary articles for the class. The other papers provide some useful background on each topic.
The readings for the ten sessions outlined below may be changed as we progress through the course.

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*Kenneth Bollen, Structural Equations with Latent Variables , Chapter 5 (Consequences of Measurement Error)
*Overview of Principal Components Analysis (the basics of the methodology).
*Kenneth Bollen, Structural Equations with Latent Variables , Chapter 7 (Confirmatory
Factor Analysis).
*Sadka, Gil, Sadka, Ronnie and Ball, Ray, "Aggregate Earnings and Asset Prices"
(November 6, 2007). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=972624
Alan Taylor, A Brief Introduction to Factor Analysis (note: This actually describes principal components analysis)
Kristopher Preacher and Robert MacCallum, Repairing Tom Swift’s Electric Factor
Analysis Machine, Understanding Statistics , 2(1), 13-43.
Christopher D. Ittner; David F. Larcker. “Total Quality Management and the Choice of
Information and Reward Systems” Journal of Accounting Research , Vol. 33, Studies on
Managerial Accounting (1995), pp. 1-34. http://links.jstor.org/sici?sici=0021-
8456%281995%2933%3c1%3atqmatc%3e2.0.co%3b2-g
Market and Industry Factors in Stock Price Behavior
Benjamin F. King The Journal of Business Vol. 39, No. 1, Part 2: Supplement on
Security Prices (Jan., 1966), pp. 139-190. http://links.jstor.org/sici?sici=0021-
9398%28196601%2939%3a1%3c139%3amaifis%3e2.0.co%3b2-j

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*Ian Gow, Gaizka Ormazabal, and Daniel Taylor, “Correcting for Cross-Sectional and
Time-Series Dependence in Accounting Research,” working paper.
*Mitchell Peterson, “Estimating Standard Errors in Finance Panel Data Sets: Comparing
Approaches,” Review of Financial Studies , forthcoming. http://www.kellogg.northwestern.edu/faculty/petersen/htm/papers/standarderror.pdf
*The Impact of Merger-Related Regulations on the Shareholders of Acquiring Firms
Katherine Schipper; Rex Thompson Journal of Accounting Research Vol. 21, No. 1
(Spring, 1983), pp. 184-221. http://links.jstor.org/sici?sici=0021-
8456%28198321%2921%3a1%3c184%3atiomro%3e2.0.co%3b2-n
Risk, Return, and Equilibrium: Empirical Tests
Eugene F. Fama; James D. MacBeth The Journal of Political Economy > Vol. 81, No. 3
(May, 1973), pp. 607-636. http://links.jstor.org/sici?sici=0022-
3808%28197305%2f06%2981%3a3%3c607%3arraeet%3e2.0.co%3b2-j
Victor L. Bernard Cross-Sectional Dependence and Problems in Inference in Market-
Based Accounting Research Journal of Accounting Research > Vol. 25, No. 1 (Spring,
1987), pp. 1-48. http://links.jstor.org/sici?sici=0021-
8456%28198721%2925%3a1%3c1%3acdapii%3e2.0.co%3b2-p

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* The Structure of Corporate Ownership: Causes and Consequences
Harold Demsetz; Kenneth Lehn The Journal of Political Economy Vol. 93, No. 6 (Dec.,
1985), pp. 1155-1177. http://links.jstor.org/sici?sici=0022-
3808%28198512%2993%3a6%3c1155%3atsococ%3e2.0.co%3b2-%23
*Larcker, David F. and Rusticus, Tjomme O., "On the Use of Instrumental Variables in
Accounting Research" (October 29, 2007). http://ssrn.com/abstract=694824
*Understanding the determinants of managerial ownership and the link between ownership and performance Journal of Financial Economics , Volume 53, Issue
3, September 1999, Pages 353-384 Charles P. Himmelberg, R. Glenn Hubbard and
Darius Palia http://www.sciencedirect.com/science?_ob=mimg&_imagekey=b6vbx-3x2j0ck-2-
29&_cdi=5938&_user=145269&_orig=search&_coverdate=09%2f30%2f1999&_sk=999
469996&view=c&wchp=dglbvzzzskzv&md5=35d8e1ce1d53461ab8ddbbdd64a3e9d9&ie=/sdarticle.pdf
*Understanding the determinants of managerial ownership and the link between ownership and performance: comment Journal of Financial Economics , Volume 62, Issue
3, December 2001, Pages 559-5. Xianming Zhou http://www.sciencedirect.com/science?_ob=mimg&_imagekey=b6vbx-449tk82-1-
3&_cdi=5938&_user=145269&_orig=mlkt&_coverdate=12%2f31%2f2001&_sk=99937
9996&view=c&wchp=dglzvzzzskwa&md5=5d6db5c1308db0ca5a1b78e5c412999b&ie=/sdarticle.pdf
*Kenneth Frank, “Impact of a Confounding Variable on a Regression Coefficient,”
Sociological Methods & Research , Vol. 29, No. 2, 147-194 (2000). http://smr.sagepub.com/cgi/content/abstract/29/2/147?ck=nck

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*Paul Rosenbaum, Observational Study http://wwwstat.wharton.upenn.edu/~rosenbap/BehStatObs.pdf
*Paul Rosenbaum, Sensitivity Analysis in Observational Studies. http://www-stat.wharton.upenn.edu/~rosenbap/BehStatSen.pdf
*Marshall Joffe and Paul Rosenbaum, Propensity Scores. http://www-stat.wharton.upenn.edu/~rosenbap/AJEpropen.pdf
*Is There a Link between Executive Equity Incentives and Accounting Fraud?
Merle Erickson, Michelle Hanlon, and Edward L. Maydew
Journal of Accounting Research , Volume 44, Issue 1, Page 113-143, Mar 2006. http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1475-679x.2007.00258.x
*Jared Harris and Philip Bromiley
Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on
Financial Misrepresentation . Organization Science , May-June 2007; 18: 350 - 367. http://orgsci.journal.informs.org/cgi/search?sortspec=relevance&author1=harris&fulltext
=&pubdate_year=&volume=&firstpage =
*Armstrong, Jagolinzer, and Larcker,
Matching with Doses in an Observational Study of a Media Campaign against Drug
Abuse Bo Lu; Elaine Zanutto; Robert Hornik; Paul R. Rosenbaum
Journal of the American Statistical Association > Vol. 96, No. 456 (Dec., 2001), pp.
1245-1253 http://links.jstor.org/sici?sici=0162-
1459%28200112%2996%3a456%3c1245%3amwdiao%3e2.0.co%3b2-5
Paul Rosenbaum example1. http://www-stat.wharton.upenn.edu/~rosenbap/SOSanti.pdf
Paul Rosenbaum example 2. http://www-stat.wharton.upenn.edu/~rosenbap/jcoOvarian.pdf
Nonparametric estimation of average treatment effects under exogeneity: a review.
Imbens, Guido W. Review of Economics & Statistics , Feb2004, Vol. 86 Issue 1, p4-29. http://web.ebscohost.com/ehost/pdf?vid=3&hid=116&sid=25d954d2-9703-4158-b117-
3ddf449c6a69%40sessionmgr103

6
* The First-Order Approach to Principal-Agent Problems
William P. Rogerson Econometrica > Vol. 53, No. 6 (Nov., 1985), pp. 1357-1367 http://links.jstor.org/sici?sici=0012-
9682%28198511%2953%3a6%3c1357%3atfatpp%3e2.0.co%3b2-c
* Distributions for the first-order approach to principal-agent problems
Marco LiCalzi, Sandrine Spaeter .
Economic Theory. Heidelberg: Jan 2003. Vol. 21, Iss.
1; p. 167. http://proquest.umi.com/pqdweb?index=5&did=692211691&srchmode=3&sid=1&fmt=6
&vinst=prod&vtype=pqd&rqt=309&vname=pqd&ts=1197677817&clientid=12498&aid
=1
* Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job
Design Bengt Holmstrom; Paul Milgrom Journal of Law, Economics, & Organization
Vol. 7, Special Issue: [Papers from the Conference on the New Science of Organization,
January 1991] (1991), pp. 24-52 http://links.jstor.org/sici?sici=8756-
6222%281991%297%3c24%3ampaica%3e2.0.co%3b2-3 .
* Moral Hazard and Verifiability: The Effects of Renegotiation in Agency
Benjamin E. Hermalin; Michael L. Katz Econometrica Vol. 59, No. 6 (Nov., 1991), pp.
1735-1753 http://links.jstor.org/sici?sici=0012-
9682%28199111%2959%3a6%3c1735%3amhavte%3e2.0.co%3b2-n
Short-term contracts and long-term agency relationships
Journal of Economic Theory , Volume 51, Issue 1, June 1990, Pages 1-31
Drew Fudenberg, Bengt Holmstrom and Paul Milgrom. http://www.sciencedirect.com/science?_ob=mimg&_imagekey=b6wj3-4cyggfd-1tm-
1&_cdi=6867&_user=145269&_orig=search&_coverdate=06%2f30%2f1990&_sk=9994
89998&view=c&wchp=dglbvzzzskwz&md5=33fc2c3e58e77405d57a4cd822167c12&ie=/sdarticle.pdf
An Analysis of the Principal-Agent Problem Sanford J. Grossman; Oliver D. Hart
Econometrica Vol. 51, No. 1 (Jan., 1983), pp. 7-45 http://links.jstor.org/sici?sici=0012-
9682%28198301%2951%3a1%3c7%3aaaotpp%3e2.0.co%3b2-a

7
Justifying the First-Order Approach to Principal-Agent Problems
Ian Jewitt Econometrica Vol. 56, No. 5 (Sep., 1988), pp. 1177-1190 http://links.jstor.org/sici?sici=0012-
9682%28198809%2956%3a5%3c1177%3ajtfatp%3e2.0.co%3b2-a
Moral Hazard and Renegotiation in Agency Contracts Drew Fudenberg; Jean Tirole
Econometrica Vol. 58, No. 6 (Nov., 1990), pp. 1279-1319 http://links.jstor.org/sici?sici=0012-
9682%28199011%2958%3a6%3c1279%3amharia%3e2.0.co%3b2-e
* On the Efficiency of Stock-Based Compensation Jonathan M. Paul
The Review of Financial Studies Vol. 5, No. 3 (1992), pp. 471-502 http://links.jstor.org/sici?sici=0893-
9454%281992%295%3A3%3C471%3AOTEOSC%3E2.0.CO%3B2-Q
* Stock Price, Earnings, and Book Value in Managerial Performance Measures
Authors: Sunil Dutta and Stefan Reichelstein The Accounting Review Vol 80 No. 4 2005
1069-1100. http://www.atypon-link.com/AAA/doi/pdf/10.2308/accr.2005.80.4.1069
Accounting income, stock price, and managerial compensation
Journal of Accounting and Economics , Volume 16, Issues 1-3, January-July 1993, Pages
3-23. Robert M. Bushman and Raffi J. Indjejikian. http://www.sciencedirect.com/science?_ob=MImg&_imagekey=B6V87-45BC69X-P-
1&_cdi=5863&_user=145269&_orig=search&_coverDate=07%2F31%2F1993&_sk=99
9839998&view=c&wchp=dGLbVzzzSkWb&md5=74cca91bbd6e41f3ddeebb729a14225d&ie=/sdarticle.pdf

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* Performance Pay and Top-Management Incentives Michael C. Jensen; Kevin J. Murphy
The Journal of Political Economy Vol. 98, No. 2 (Apr., 1990), pp. 225-264 http://links.jstor.org/sici?sici=0022-
3808%28199004%2998%3a2%3c225%3appati%3e2.0.co%3b2-i
* Risk Aversion, Performance Pay, and the Principal-Agent Problem
Joseph G. Haubrich The Journal of Political Economy Vol. 102, No. 2 (Apr., 1994), pp.
258-276. http://links.jstor.org/sici?sici=0022-
3808%28199404%29102%3A2%3C258%3ARAPPAT%3E2.0.CO%3B2-B
*Are CEOS Really Paid Like Bureaucrats? Brian J. Hall, Jeffrey B. Liebman
Quarterly Journal of Economics August 1998, Vol. 113, No. 3: 653-691. http://www.mitpressjournals.org/doi/pdfplus/10.1162/003355398555702
* An Analysis of the use of Accounting and Market Measures of Performance in
Executive Compensation Contracts Richard A. Lambert; David F. Larcker Journal of
Accounting Research Vol. 25, Studies on Stewardship Uses of Accounting Information
(1987), pp. 85-125 http://links.jstor.org/sici?sici=0021-
8456%281987%2925%3c85%3aaaotuo%3e2.0.co%3b2-4
Frydman, Carola and Saks, Raven E., "Executive Compensation: A New View from a
Long-Term Perspective, 1936-2005" (July 6, 2007). FEDS Working Paper No. 2007-35 http://ssrn.com/abstract=972399
Executive equity compensation and incentives: a survey.
Core, John E.; Guay, Wayne
R.; Larcker, David F .
. Economic Policy Review , Apr2003, Vol. 9 Issue 1, p27. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9765398&site=ehostlive
Murphy, Kevin J., "Executive Compensation" (April 1998). http://ssrn.com/abstract=163914

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*The use of equity grants to manage optimal equity incentive levels
Journal of Accounting and Economics , Volume 28, Issue 2, December 1999, Pages 151-
184 John Core and Wayne Guay. http://www.sciencedirect.com/science?_ob=ArticleListURL&_method=list&_ArticleList
ID=663985686&_sort=d&view=c&_acct=C000012078&_version=1&_urlVersion=0&_u serid=145269&md5=3ce822aebf069203d608a273fffffd02
*Are executive stock options associated with future earnings?
Journal of Accounting and Economics , Volume 36, Issues 1-3, December 2003, Pages 3-
43 . Michelle Hanlon, Shivaram Rajgopal and Terry Shevlin. http://www.sciencedirect.com/science?_ob=mimg&_imagekey=b6v87-4bmkgn2-3-
57&_cdi=5863&_user=145269&_orig=search&_coverdate=12%2f31%2f2003&_sk=999
639998&view=c&wchp=dglzvzzzskww&md5=7e1157bef095a9e1fbbb58dc34236567&ie=/sdarticle.pdf
*Discussion of “are executive stock options associated with future earnings?”
Journal of Accounting and Economics , Volume 36, Issues 1-3, December 2003, Pages
91-103.
David F. Larcker http://www.sciencedirect.com/science?_ob=MImg&_imagekey=B6V87-4BDY762-1-
44&_cdi=5863&_user=145269&_orig=search&_coverDate=12%2F31%2F2003&_sk=9
99639998&view=c&wchp=dGLbVtzzSkWW&md5=4e01e0b4b9bced9c9956eb508c61c237&ie=/sdarticle.pdf
*Corporate governance, chief executive officer compensation, and firm performance.
Core, John E.; Holthausen, Robert W.; Larcker, David F .
Journal of Financial
Economics, Mar1999, Vol. 51 Issue 3, p371-406. http://www.sciencedirect.com/science?_ob=MImg&_imagekey=B6VBX-3VY00MF-2-
1&_cdi=5938&_user=145269&_orig=search&_coverDate=03%2F31%2F1999&_sk=99
9489996&view=c&wchp=dGLbVzzzSkWA&md5=3aae4e5479fcc0b1192a61fa22c6a37d&ie=/sdarticle.pdf
Estimating the Value of Employee Stock Option Portfolios and Their Sensitivities to
Price and Volatility John Core & Wayne Guay. Journal of Accounting Research June
2002. http://www.blackwell-synergy.com/doi/pdf/10.1111/1475-679X.00064

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*Corporate Governance and Equity Prices Paul Gompers, Joy Ishii, Andrew Metrick
Quarterly Journal of Economics February 2003, Vol. 118, No. 1: 107–155. http://www.mitpressjournals.org/doi/pdf/10.1162/00335530360535162
*Does Weak Governance Cause Weak Stock Returns? An Examination of Firm
Operating Performance and Investors' Expectations. John E. Core, Wayne R. Guay, and
Tjomme O. Rusticus The Journal of Finance , Volume 61, Issue 2, Page 655-687, Apr
2006. http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1540-6261.2006.00851.x
*Corporate Governance, Accounting Outcomes, and Organizational Performance.
Larcker, David F .
;
Richardson, Scott A.; Tuna, İrem.
Accounting Review , Jul 2007, Vol.
82 Issue 4, p963-1008. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25813002&site=ehostlive
*Eliezer M. Fich, Anil Shivdasani (2006) Are Busy Boards Effective Monitors? The
Journal of Finance 61 (2), 689–724. http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1540-6261.2006.00852.x
Cremers, K.J. Martijn ; Nair, Vinay B. ; Wei, Chenyang Governance Mechanisms and
Bond Prices The Review of Financial Studies 20, no. 5 (2007): 1359-1388. http://firstsearch.oclc.org/webz/ftfetch?sessionid=fsapp11-35092-fabbg5vfma8b7c:entitypagenum=11:0:rule=100:fetchtype=fulltext:dbname=eco_ft:recno=1:result set=6:ftformat=pdf:format=bi:isbillable=true:numrecs=1:isdirectarticle=false:entityemailf ullrecno=1:entityemailfullresultset=6:entityemailftfrom=eco_ft

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*The Symbolic Management of Stockholders: Corporate Governance Reforms and
Shareholder Reactions. By: Westphal, James D.; Zajac , Edward J. Administrative Science
Quarterly , Mar1998, Vol. 43 Issue 1, p127-153. http://web.ebscohost.com/ehost/pdf?vid=5&hid=109&sid=00467871-b84b-4978-8eecbdac47d8b6f5%40sessionmgr107
*James B. Wade, Charles A. O'Reilly, III, and Timothy G. Pollock
Overpaid CEOs and Underpaid Managers: Fairness and Executive Compensation
Organization Science , September-October 2006; 17: 527 - 544. http://orgsci.journal.informs.org/cgi/reprint/17/5/527?maxtoshow=&HITS=10&hits=10&
RESULTFORMAT=&author1=o%27reilly&searchid=1&FIRSTINDEX=0&sortspec=rel evance&resourcetype=HWCIT
*Arimit Chatterjee Donald Hambrick. It’s all about me: Narcissistic CEOs and their effects on company strategy and performance. Administrative Science Quarterly
(forthcoming). http://jacksonleadership.com/pdfs/Narcissistic_CEOs_05-04-06_ASQ.pdf
Substance and Symbolism in CEOs' Long-term Incentive Plans. By: Westphal, James D.;
Zajac , Edward J. Administrative Science Quarterly , Sep94, Vol. 39 Issue 3, p367-390. http://web.ebscohost.com/ehost/pdf?vid=5&hid=109&sid=00467871-b84b-4978-8eecbdac47d8b6f5%40sessionmgr107