University of North Carolina at Charlotte Belk College of Business BPHD Theory of Corporate Finance Fall 2013 Syllabus

Transcription

1 University of North Carolina at Charlotte Belk College of Business BPHD Theory of Corporate Finance Fall 2013 Syllabus Professor: Dolly King Office: 211A Friday Building Phone: Class Time/Location: 9:30am to 12:15pm Tuesday, 391 Friday Building Office Hours: By appointment Course Objective This PhD seminar focuses on contemporary issues in corporate financial theory. We will be exploring major issues in corporate finance including: capital structure, agency theory, information asymmetry and signaling, corporate payout policy, financing strategies and security issuance, market for corporate control, and corporate governance. The main goal of this seminar is to provide a comprehensive overview of the theories and empirical work in corporate finance AND to stimulate research-oriented discussions in an open forum. The seminar will be done in the format of paper discussions. Below is the reading list. Please note that these topics and related articles are not intended to be exhaustive. There are of course other topics/papers not listed here. What I aim to include is a list of research topics and papers that are considered main topics and classic papers. Supplemental Reading I do not plan to follow any corporate finance textbooks for the seminar. However, I strongly encourage you to read up on the backgrounds of the topics we will discuss throughout the semester. Here are my suggestions: 1. The Theory of Corporate Finance by Jean Tirole, Princeton University Press, This is a new book by one of the top economics working in corporate finance and other areas. This text is the best book (so far out there) for readings on corporate finance theories at the Ph.D. level. 2. Principles of Corporate Finance by Brealey, Myers, and Allen, 2013, Irwin-McGraw Hill. This is the classic and standard MBA level corporate finance text. 3. Corporate Finance by Ross, Westerfield, and Jaffe, 2010, McGraw Hill. This is another well-known corporate finance text. Grading Grading for this course is determined by: 1. Research Paper Discussions 1

2 We will review in details corporate finance papers selected from the reading list below. The selected papers are listed in the course schedule (distributed separately). Each student will take turns presenting the papers (counts for 30% of your grade). Three papers will be presented and discussed each week. Based on the time allotted for our class, there will be 50 min assigned to each paper. Please prepare for 40 min of paper presentation and leave 10 min for class discussion. Presentation guidelines are provided below. In addition to presentation, you are required to complete three critiques (counts for 15% of your grade). From the list of selected papers in the course schedule, you are free to choose the three papers to perform the critiques on. Written critiques are due on the day of paper presentations. Critique guidelines are provided below. Regardless of which papers you are assigned to present and which ones you choose to perform critiques on, everyone should come to class prepared to raise and answer questions in class discussion regarding these papers. Presentation Guidelines: Each presentation should include the following components (1) Problem statement and motivation; (2) Brief survey of the literature; (3) Concise and intuitive explanations of the arguments for theoretical models or describe empirical methodology and why this methodology is used; (4) Summary of main results and contributions; (5) Critical examination of the strengths and weaknesses of the study; (6) Possible extensions to the paper with specific suggestions about solution techniques (for theory) or empirical methodology/data for these extensions; and (7) Presentation skills are extremely important in our profession. Keep in mind that each presentation must be both informative and entertaining. In addition to presentation contents described in components #1~6, you will also be evaluated on how well you present. I will provide comments and suggestions about your presentation skills throughout the semester. Presentation will take a lot of time and efforts, but it will be well worth it! Critique Guidelines: Critiques must be at least two pages in length (with a maximum of six pages). The format of the critiques should be similar to that of a referee report (so view these critiques as a short version of a formal referee report). In each critique, include the following components: (1) Brief summary of the research problem, motivation, main results, and contributions; (2) Discuss relevant literature; (3) Examine the study in a critical way by pointing out issues/problems and provide suggestions. It is important to support your criticisms and suggestions with relevant literature. 2. Midterm Exam (counts for 15% of your grade): Take-home exam on papers discussed on and prior to October 1 (Tuesday). Midterm exam will be distributed on October 1 (Tuesday) and due on October 15 (Tuesday). 3. Final Exam (counts for 15% of your grade): Final exam options will be distributed on November 26 (Tuesday). You can choose to complete ONE of the following options: term project presentation, take-home exam, or referee report. Project presentations (if anyone chooses this option) and due date of the take-home exams/referee reports are on December 10 (Tuesday). 4. Term Project (counts for 25% of your grade): The requirement of the term project is to be satisfied by the following elements: 2

3 a. Find a topic for research in the field of corporate finance. The topic can be any issue as long as it is in corporate finance, i.e., the topic can be from the topics from the reading list or outside the list. For example, you can do something in corporate risk management if you are interested. b. Perform an extensive and comprehensive literature review of the topic you have chosen. Include both theoretical and empirical work related to the topic. c. Provide motivation and potential contributions of the topic of research. Be sure to position the topic well within the related literature. d. Design research methodologies for your topic. In other words, what theoretical derivations or empirical analysis do you plan to perform to examine the chosen topic? e. Discuss data sources. f. Bonus: Preliminary results would yield bonus points for the project grade. g. A formal project report is due on December 11 (Wednesday). A one-page proposal for the term project is due on September 24 (Tuesday). Please feel free (and I strongly encourage you) to stop by to discuss your ideas for the project anytime. I would like to meet with you individually when you submit your proposal. Background Below is a list of articles that provide backgrounds on various theories and empirical methodologies in finance. We will not discuss these articles in class; however, these are very useful sources for doing research in finance. 1. E.F. Fama, "Efficient Capital Markets: II," Journal of Finance 46, 1991, S.J. Brown and J.B. Warner, "Using Daily Stock Returns in Event Studies," Journal of Financial Economics 14, 1985, MacKinlay, Craig "Event Studies in Economics and Finance," 35 Journal of Economic Literature Barber, Brad and John Lyon "Detecting Long-Run Abnormal stock returns: The Empirical power and specification of Test Statistics," 43 Journal of Financial Economics, Kothari, S.P. and Jerold Warner "Measuring Long-Horizon Security Price performance," 43 Journal of Financial Economics Lyon, John, Brad Barber and Chih Tsai "Improved Methods for Tests of Long- Run Abnormal Stock returns," 54 Journal of Finance Barber, Brad and John Lyon, "Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics," Journal of Financial Economics 41,

4 8. E.F.Fama, Market Efficiency, Long-term Returns, and Behavioral Finance, Journal of Financial Economics 49, 1998, Reading List 1. Capital Structure: The Classics a. Modigliani, F. and M. Miller, The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review, June 1958, b. Modigliani, F. and M. Miller, Corporate Income Taxes and the Cost of Capital, American Economic Review, June 1963, c. Miller, M., Debt and Taxes, Journal of Finance, June 1977, d. Fama, E., The Effects of a Firm s Investment and Financing Decision, American Economic Review, June 1978, e. DeAngelo, H. and R. Masulis, Optimal Capital Structure under Corporate and Personal Taxation, Journal of Financial Economics, March 1980, Capital Structure: Debt and Taxes a. Graham, J., Debt and the Marginal Tax rate, Journal of Financial Economics, May 1996, b. Graham, J., How Big are the Tax Benefits of Debt, Journal of Finance, October 2000, Capital Structure: Review and Recent Empiricals a. Harris, M. and A. Raviv, The Theory of Capital Structure, Journal of Finance, March 1991, b. Welch, I., Capital Structure and Stock Returns, Journal of Political Economy, Feb 2004, c. Booth, L., V. Aivazian, A. Demirguc-Kunt, and V. Maksimovic, Capital Structures in Developing Countries, Journal of Finance, Feb 2001, d. DeAngelo, H., L. DeAngelo, and T. Whited, Capital Structure and Transitory Debt, Journal of Financial Economics, Feb 2011, e. V. B. Uysal, Deviation from the Target Capital Structure and Acquisition Choices, Journal of Financial Economics, Dec 2011, Agency Problems, Capital Structure, and Ownership Structure a. Jensen, M. and W. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, Journal of Financial Economics, October 1976, (Note: This paper is included in Dr. Nash seminar. We will not discuss this paper; however I kept this paper here to reflect which topic it falls under.) b. Myers, S.C., Determinants of Corporate Borrowing, Journal of Financial Economics, November 1977, c. Jensen, M., Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, American Economic Review, May 1986, (Note: This paper is included in Dr. Nash seminar. We will not discuss this paper; however I kept this paper here to reflect which topic it falls under.) 4

5 d. Green, R., Investment Incentives, Debt and Warrants, Journal of Financial Economics, March 1984, Adverse Selection and Signaling/Information Asymmetry a. Ross, S., The Determinants of Financial Structure: The Incentive Signaling Approach, Bell Journal of Economics, Spring 1977, b. Leland, H. and D. Pyle, Information Asymmetries, Financial Structure, and Financial Intermediation, Journal of Finance, May 1977, c. Myers, S. and N. Majluf, Corporate Financing and Investment Decisions when Firms have Information that Investors Do Not Have, Journal of Financial Economics, June 1984, d. Akerlof, G.A., The Market for Lemons : Quality Uncertainty and the Market Mechanism, The Rand Journal of Economics, August 1970, e. Cho, I. and D. Kreps, Signaling Games and Stable Equilibria, Quarterly Journal of Economics, May 1987, f. Duarte, J., X. Han, J. Harford, and L. Young, Information Asymmetry, Information Dissemination and the Effect of Regulation FD on the Cost of Debt, Journal of Financial Economics, Jan 2008, g. Chan, K., A. Menkveld, and Z. Yang, Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount, Journal of Finance, Feb 2008, Corporate Payout Policy: Dividends a. Miller, M. and F. Modigliani, Dividend Policy, Growth and the Valuation of Shares, Journal of Business, October 1961, b. Black, F., The Dividend Puzzle, Journal of Portfolio Management, 1976, 5-8. c. Easterbrook, F., Two Agency-Cost Explanations of Dividends, American Economic Review, September 1984, d. Brickley, J., Shareholder Wealth, Information Signaling and the Specially Designated Dividend: An Empirical Study, Journal of Financial Economics, August 1983, e. John, K. and J. Williams, Dividends, Dilution, and Taxes: A Signalling Equilibrium, Journal of Finance, September 1985, f. Miller, M. and K. Rock, Dividend Policy Under Asymmetric Information, Journal of Finance, September 1985, g. Fama, E. and K. French, Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay? Journal of Financial Economics, April 2001, h. Baker, M. and J. Wurgler, A Catering Theory of Dividends, Journal of Finance, June 2004, i. Bhattacharya, S., Imperfect Information, Dividend Policy, and the Bird in the Hand Fallacy, Bell Journal of Economics, Spring 1979, j. Becker, B. Z. Ivkovic, and S. Weisbenner, Local Dividend Clienteles, Journal of Finance, April 2011, k. Michaely, R., Corporate Dividend Policies: Lessons from Private Firms, Review of Financial Studies, Nov 2011,

6 l. Leary, M. and R. Michaely, Determinants of Dividend Smoothing: Empirical Evidence, Review of Financial Studies, Oct 2011, Corporate Payout Policy: Share Repurchases a. Dann, L., Common Stock Repurchases: An Analysis of Returns to Bondholders and Stockholders, Journal of Financial Economics, June 1981, b. Grullon, G., and R. Michaely, The Information Content of Share Repurchases Programs, Journal of Finance, April 2004, Security Design and Financial Contracting a. Diamond, D. Seniority and Maturity Structure of Debt Contracts, June 1993, Journal of Financial Economics, b. Harris, M. and A. Raviv, The Design of Securities, Journal of Financial Economics, October 1989, c. Gale, D. and M. Hellwig, Incentive Compatible Debt Contracts: The One Period Problem, Review of Economic Studies, 1985, d. Townsend, R., Optimal Contracts and Competitive Markets with Costly State Verification, Journal of Economic Theory, 1979, e. Aghion, P. and P. Bolton, An Incomplete Contract Approach to Financial Contracting, Review of Economic Studies, 1992, f. Bolton, P. and D. Scharfstein, Optimal Debt Structure and the Number of Creditors, Journal of Political Economy, January 1996, g. Allen, F. and D. Gale, Optimal Security Design, Review of Financial Studies, 1988, Security Issuance, IPOs, and Venture Capital a. Beatty, R. and J. Ritter, Investment Banking, Reputation, and the Underpricing of Initial Public Offerings, Journal of Financial Economics, Jan-Feb 1986, b. Carter, R. and S. Manaster, Initial Public Offerings and Underwriting Reputation, Journal of Finance, September 1990, c. Smith, C., Investment Banking and the Capital Acquisition Process, Journal of Financial Economics, Jan-Feb 1986, d. Ritter, J., The Long-Run Performance of Initial Public Offerings, Journal of Finance, March 1991, e. Ritter, J. and I. Welch, A Survey of IPO Activity, Pricing, and Allocation, Journal of Finance, August 2002, f. Lerner, J., Venture Capitalists and the Decision to Go Public, Journal of Financial Economics, June 1994, g. Gompers, P., Optimal Investment, Monitoring, and the Staging of Venture Capital, Journal of Finance, December 1995, h. Rock, K., Why New Issues are Underpriced, Journal of Financial Economics, Jan-Feb 1986, i. Chemmanur, T., The Pricing of Initial Public Offerings: A Dynamic Model with Information Production, Journal of Finance, March 1993,

7 j. Chemmanur, T. and P. Fulghieri, Investment Bank Reputation, Information Production, and Financial Intermediation, Journal of Finance, March 1994, k. Allen, F. and G. Faulhaber, Signaling by Underpricing in the IPO Market, Journal of Financial Economics, August 1989, l. Billett, M., M. Flannery, and J. Garfinkel, Frequent Issuers Influence on Long- Run Post-Issuance Returns, Journal of Financial Economics, Feb 2011, Market for Corporate Control and M&A a. Jensen, M. and R. Ruback, The Market for Corporate Control: The Scientific Evidence, Journal of Financial Economics, April 1983, b. Jarrell, G., J. Brickley, and J. Netter, The Market for Corporate Control: The Empirical Evidence since 1980, Journal of Economic Perspective, Winter 1988, c. Roll, R., The Hubris Hypothesis of Corporate Takeovers, Journal of Business, April 1986, d. Moeller, S., F. Schlingemann, and R. Stulz, Wealth Destruction on a Massive Scale: A Study of Acquiring-Firm Returns in the Recent Merger Wave, Journal of Finance, April 2005, e. Fuller, K., J. Netter, and M. Stegmoller, What do Returns from Acquiring Firms Tell Us? Evidence from Firms that Make Many Acquisitions, Journal of Finance, August 2002, f. Maxwell, W. and R. Rao, Do Spinoffs Expropriate Wealth from Bondholders? Journal of Finance, October 2003, g. Shleifer, A., and R. Vishny, Large Shareholders and Corporate Control, Journal of Political Economy, June 1986, Corporate Governance and Management Compensation a. Shleifer, A. and R. Vishny, A Survey of Corporate Governance, Journal of Finance, June 1997, b. Grossman, S. and O. Hart, Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation, Bell Journal of Economics (11), 1980, c. Grossman, S. and O. Hart, One-Share-One-Vote and the Market for Corporate Control, Journal of Financial Economics (20), 1988, d. John, K. and T. John, Top-Management Compensation and Capital Structure, Journal of Finance, July 1993, e. Carpenter, J., Does Option Compensation Increases Managerial Risk Appetite, Journal of Finance, October 2000, f. Oyer, P. and S. Schaefer, Why do Some Firms Give Stock Options to All Employees? An Empirical Examination of Alternative Theories, Journal of Financial Economics, 2005, g. Core, J. and W. Guay, Stock Option Plans for Non-Executive Employees, Journal of Financial Economics, 2001, h. Bhagat, S. and B. Bolton, Corporate Governance and Firm Performance, Journal of Corporate Finance, 2008,

8 i. Bhagat, S., B. Bolton, and R. Romano, The Promise and Peril of Corporate Governance Indices, Columbia Law Review, 2008, j. Andres, P. and E. Vallelado, Corporate governance in banking: The role of the board of directors, Journal of Banking & Finance 32, k. Bhojraj, S. and P. Sengupta, Effect of corporate governance on bond ratings and yields: The role of institutional investors and outside directors, Journal of Business 76, l. Cremers, K. and V. Nair, Governance mechanisms and equity prices, Journal of Finance 60, m. Cremers, K., V. Nair, and C. Wei, Governance mechanisms and bond prices, Review of Financial Studies 20, n. Giroud, X. and H.M. Mueller, Does corporate governance matter in competitive industries? Journal of Financial Economics 95, o. Gompers, P., J. Ishii, and A. Metrick, Corporate governance and equity prices, Quarterly Journal of Economics 118, p. Hartzell, J.C. and L.T. Starks, Institutional investors and executive compensation, Journal of Finance 58, q. John, K., L. Litov, and B. Yeung, Corporate governance and risk-taking, Journal of Finance 63, r. Johnson, S. A., T.C. Moorman, and S. Sorescu, A reexamination of corporate governance and equity prices, Review Financial Studies 22, s. Klock, M.S., S.A. Mansi, and W.F. Maxwell, Does corporate governance matter to bondholders? Journal of Financial & Quantitative Analysis 40, t. Masulis, R.W., C. Wang, and F. Xie, Corporate governance and acquirer returns, Journal of Finance 62, u. Bedchuk, L., A. Cohen, and A. Ferrell, What Matters in Corporate Governance, Review of Financial Studies, Feb 2009, v. Hermalin, B. and M. S. Weisbach, Information Disclosure and Corporate Governance, Journal of Finance, Feb 2012,