Empirical Corporate Finance (EF8080)

 

Dr. Xueping WU, Dr. Yaxuan QI, Dr. Shan ZHAO and Dr. Qianqian HUANG

 

Year 2021-22, Semester B

 

Monday 19:00-21:50

Class Room: 7-207 LAU (AC3)

 

Course Description

This course covers 13 topics co-taught by four finance faculty. These topics are related to corporate finance and governance. In a perfect market without market imperfections (or frictions), corporate financial policies (the right-hand side of the balance sheet) have no valuation effect—firm value is fully determined by assets in place plus the investment opportunities (the left-hand side of the balance sheet, measured in market value). Conversely, if market imperfections such as agency conflicts and asymmetric information arise to distort investments, firm financial decisions do matter. As a result, managers have to choose optimally financial decisions to mitigate market imperfections faced by their firms. If anybody ever suggests you an optimal financial policy, the first thing you should ask is “what is the specific market imperfection here?”

 

Different types of firm may face different specifications of market imperfection and hence may take distinct financial policies as optimal responses accordingly to given types of business on the left-hand side of the balance sheet. This is close to a neoclassic view in which real investment is essential and dominates over everything else. However, many researchers still believe that managers can steer financial policy to affect real investment. In macroeconomics, a so-called financing-channel determination of investment has become an important view. We hope this course will broad you views before you get down to your research work. Research is a learning by doing process and we hope your high quality empirical research in finance starts with the course.

 

Dr Wu (webpage: http://personal.cityu.edu.hk/~efxpwu/) will focus on specifications of market imperfections and spell out the relationships between firm valuations and financial decisions under various market imperfections. We will deepen our discussion on major corporate financial issues such as capital structure and dividend policies.

 

Dr. Qi will look at debt financing, law and finance, and financial institution. She will first cover basic theories and survey papers to understand fundamental issues and important findings in this area.  She will also study selected papers exploring agency cost of debt, underinvestment and overinvestment, bankruptcy, political risk and regulation.

 

Dr. Zhao will focus on corporate governance issues. He will first introduce the basic framework of corporate governance. Then he will cover main components of corporate governance: ownership structure, the market for control, executive compensation, boards of directors, and shareholder activism.

Dr. Huang will focus on Initial Public Offerings (IPO) and Mergers and Acquisitions (M&A). IPOs and M&As are among the most important financing and investment decisions that firms undertake. We will examine the determinants of firms’ decisions to go public or merge, pricing of IPOs, and the short and long-run stock performance of the newly public and acquiring firms.

 

Grade: 50% Assignments; 50% Final Essay

 

Course materiel: Class notes and parts from textbooks:

(1)  Brealey, Richard A., Stewart C. Myers, and Franklin Allen (BMA), “Principles of Corporate Finance”, 8/e or later editions, McGraw-Hill

(2)  Reading lists of journal articles under various topics

 

Assignment (to be explained in class):

There will be one assignment that requires hands-on exercises to deal with research data and designs. The purpose is for the students to get familiar with the databases that will be eventually useful and likely processed in an effective way in the later dissertation development.

 

Course Outline

 

Topic 0: (Each Professor accordingly) Literature Search Method

The pedagogical arrangement on delivering the topic on literature search will be through hands-on practice during the whole semester.

 

Ø  Search e-resource at Library of CityU of HK

Ø  Google Search with known/partly known author/paper title/keywords

Ø  Tracking the citations: e.g., Google Scholar

Ø  Advanced Search at FEN and other related sources

Ø  Search PhD students’ research topics from top schools

Ø  Get familiar with databases commonly used for finance and accounting research

 

Topic 1: (Dr. Wu) Firm Valuation and Capital Structure (BMA Ch.5, 6.,7, 18,19,20)—Home Reading of Class Notes

·         Basic Economic Issues in Firm Valuation in a Neoclassic Framework

·         Firm Valuation Framework

·         Separation of Firm Valuation from Financial Policies

·         Capital or Financial Structure with and without Taxes (Proof of MM I & II)

·         Cost of Equity and Cost of Capital (WACC)

·         Determination of Debt/Equity Ratio: A preview

 

Topic 2: (Dr. Wu) Payout Policy (BMA Ch17)

·         Tax Effects

·         Asymmetric Information: Signaling and Adverse Selection Models

·         Incomplete Contracts: Agency Models

 

Topic 3: (Dr. Wu) Seasoned Equity Offerings (SEOs) (BMA Ch15, 16)

·         Floatation Methods of SEOs

·         Floatation Costs and Rights Offer Puzzle

·         Announcement Effects of SEOs: Empirical

·         SEO Announcement Effects: Hypotheses and Theories

·         Long Term Performance After SEO

 

Topic 4:  (Dr. Wu) On the Persistence in Corporate Finance

·         The Generalized Myers and Majluf Framework and a Growth-type-aligned Pattern for Financing

·         A Growth Type Explanation for Persistence in Capital Structure

·         A Growth Type Explanation for Persistence in Dividend Policies

·         A Growth Type Explanation for Investment-Cash Flow Sensitivities

·         A Firm Growth Type Compatibility Framework for Corporate Finance  

 

Readings: (Note: a classic paper “#”, a hot paper “*”, a review paper “@”)

Firm Valuation, Investment and Financing Decisions

1.      *Fama, Eugence F., and Kenneth R. French, 1998, Taxes, financing decisions, and firm value, Journal of Finance 53, 819-843.

2.      @Miller, Merton, 1988, The Modigliani Miller propositions after thirty years, Journal of Economic Perspectives 2, No 4, 99-120.

3.      #Miller, Merton, and Franco Modigliani, 1961, Dividend policy, growth, and the valuation of shares, Journal of Business 34, 411-433.

4.      #Modigliani, Franco, and Merton Miller, 1958, The cost of capital, corporation finance, and the theory of investment, American Economic Review 48, 261-297.

5.      #Modigliani, Franco, and Merton Miller, 1963, Corporate income taxes and the cost of capital: A correction, American Economic Review 53, 433-443.

6.      Smith, C., R. Watts, 1992, the investment opportunity set and corporate financing, dividend, and compensation policies, Journal of Financial Economics 32, 263-292. 

7.      #Stein, Jeremy C., 1996, Rational capital budgeting in an irrational world, Journal of Business 69, 429-455.

8.      *Stulz, R. 1990, Managerial discretion and optimal financing policies, Journal of Financial Economics 26, 3-27.

9.       Wu, Xueping and Lily L. Xu, 2005, The Value Information of Financing Decisions and Corporate Governance during and after the Japanese Deregulation, Journal of Business 78, No. 1, 243-280.

10.  @Zingales, Luigi, 2000, In search of new foundations, Journal of Finance 55, 1623- 1653.

11.  Rajan, Raghuram G., 2012, The corporation in finance, Journal of Finance 67, 1173-1217.

12.  Wu, Xueping, and C.K. Au Yeung, 2014, Firm growth uncertainty and the persistence of corporate investment and financial policies, Working paper, City University of Hong Kong

13.  Wu, Xueping, and C.K. Au Yeung, 2015, The sensitivity of investment to cash flow: An explanation based on the growth-type-aligned financing hierarchy, Working paper, City University of Hong Kong

 

Capital Structure

14.  Alti, Aydogan, 2006, How persistent is the impact of market timing on capital structure? Journal of Finance 61, No. 4, 1681-1710.

15.  *Baker, M., and J. Wurgler, 2002, Market timing and capital structure, Journal of Finance 57, 1-32.

16.  *Fama, Eugene F., and Kenneth R. French, 2002, Testing trade-off and pecking order predictions about dividends and debt, Review of Financial Studies 15, 1-33.

17.  @Harris, Milton, and Artur Raviv, 1991, The theory of capital structure, The Journal of Finance 46, 297-355.

18.  *Lemmon, Michael, Michael Roberts, and Jaime Zender, 2008, Back to the beginning: Persistence and the cross-section of corporate capital structure, Journal of Finance 63, 1575-1608.

19.  #Myers, Steward C., 1977, Determinants of corporate borrowing, Journal of Financial Economics 5, 147-175

20.  #Myers, Stewart C., 1984, The capital structure puzzle, Journal of Finance 39, 575-592

21.  @Myers, Stewart C., 2003, Financing of corporations, in George M. Constantinides, Milton Harris, and Rene M. Stulz, eds.: Handbook of the economics of finance (Elsevier, North-Holland).

22.  *Rajan, R. and L. Zingales, 1995, What do we know about capital structure? Some evidence from international data, Journal of Finance 50, 1421-1460.

23.  Titman, Sheridan, and Roberto Wessels, 1988, The determinants of capital structure choice, Journal of Finance 43, 1-19.

24.  Kayhan, Ayla, and Sheridan Titman, 2007, Firms' histories and their capital structures, Journal of Financial Economics 83, 1-32.

25.  Chang, Xin, and Sudipto Dasgupta, 2009, Target Behavior and Financing: How Conclusive is the Evidence? The Journal of Finance 64, 1767-1796.

26.  Wu, Xueping, and Chau Kin Au Yeung, 2012,  Firm growth type and capital structure persistence, Journal of Banking and Finance 36, No.12, 3427-43.

 

Corporate Payout Policies

27.  @Allen, Franklin, and Roni Michaely, 2003, Payout policy, in George Constantinides, Milton Harris, and Rene Stulz, eds.: North-Holland Handbooks of Economics of Finance (Elsevier, Amsterdam, The Netherlands).

28.  DeAngelo, Harry, Linda DeAngelo, and Douglas J. Skinner, 2004, Are dividends disappearing? Dividend concentration and the consolidation of earnings, Journal of Financial Economics 72, 425-456.

29.  *DeAngelo, Harry, Linda DeAngelo, and Rene M. Stulz, 2006, Dividend policy and the earned/contributed capital mix: A test of the life-cycle theory, Journal of Financial Economics 81, 227-254.

30.  *Fama, Eugene F., and Kenneth R. French, 2001, Disappearing dividends: Changing firm characteristics or lower propensity to pay? Journal of Financial Economics 60, 3-44.

31.  Grullon, Gustavo, Roni Michaely, and Bhaskaran Swaminathan, 2002, Are dividend changes a sign of firm maturity, Journal of Business 35, 387-424.

32.  Ikenberry, David, Josef Lakonishok, and Theo Vermaelen, 1995, Market underreaction to open market share repurchases, Journal of Financial Economics 39, No. 2&3, 181-208.

33.  Jagannathan, Murali, Clifford Stephens, and Michael Weisbach, 2000, Financial flexibility and the choice between dividends and stock repurchases, Journal of Financial Economics 57, No. 3, 355-384.

34.  #Jensen, Michael C., 1986, Agency costs of free cash flow, corporate finance, and takeovers, The American Economic Review 76, 323-329.

35.  *La Porta, R., F. Lopez-de-silanes, A. Shleifer, and R. Vishny, 2000, Agency problem and dividend policies around the world, Journal of Finance 55, 1-33.

36.  Lie, Erik, 2000, Excess funds and agency problems: An empirical study of incremental cash disbursements, Review of Financial Studies 13, 219-248.

37.  Michaely, R., R.H. Thaler and K. Womack, 1995, Price reactions to dividend initiations and omissions: Overreaction or drift? Journal of Finance 50, 573-608.

38.  Hoberg, Gerard, and Nagpurnanand R. Prabhala, 2009, Disappearing Dividends, Catering, and Risk, Review of Financial Studies 22 (1), 79-116.

39.  Wu, Xueping, and C.K. Au Yeung, 2012, A growth type explanation for persistence in retained earnings and the decision to pay dividends, Working paper, City University of Hong Kong

 

Seasoned Equity Offering

40.  *Bayless, M., Chaplinsky, S., 1991, Expectations of security type and the information content of debt and equity offers, Journal of Financial Intermediation 1, 195-214.

41.  Denis, D.J., 1994, Investment opportunities and the market reaction to equity offerings, Journal of Financial and Quantitative Analysis 29, 159-177.

42.  @Eckbo, Espen B., Ronald W. Masulis, and Oyvind Norli, 2007, Security Offerings, in Espen Eckbo ed.: Handbook of Corporate Finance: Empirical Corporate Finance, Volume 1, Elsevier/North-Holland Handbook of Finance Series, Ch. 6, 233-373.

43.  Eckbo, B.E., Masulis, R.W., 1992, Adverse selection and the rights offer paradox, Journal of Financial Economics 32, 293-332.

44.  *Jung, K., Y. Kim, and R. Stulz, 1996, Timing, investment opportunities, managerial discretion, and the security issue decision, Journal of Financial Economics 42, 159-85.

45.  *Korajczyk, R.A., Lucas, D.J., McDonald, R.L., 1992, Equity issues with time-varying asymmetric information, Journal of Financial and Quantitative Analysis 27, 397-417.

46.  Kothare, M., 1997, The effects of equity issues on ownership structure and stock liquidity: a comparison of rights and public offering. Journal of Financial Economics 43, 131-148

47.  *Wruck, K., 1989, Equity ownership concentration and firm value: evidence from private equity financings, Journal of Financial Economics 23, 3-28.

48.   Wu, Xueping, Zheng Wang, and Jun Yao, 2005, Understanding the Positive Announcement Effects of the Private Equity Placements: New Insights from Hong Kong Data, Review of Finance (The official Journal of the European Finance Association), Vol. 9 (September), 385-414.

49.  Fama, Eugene F., and Kenneth R. French, 2005, Financing decisions: Who issues stock? Journal of Financial Economics 76, 549-582.

50.  Hertzel, Michael, Mark Huson, and Robert Parrino, 2012, Public market staging: The timing of capital infusions in newly public firms, Journal of Financial Economics 106, 72-90.

Information Asymmetry, Adverse Selection and Signaling

51.  #Akerlof, G.A., 1970, The market for “lemons”: Quality and the market mechanism, Quarterly Journal of Economics 84, 488-500.

52.  @Daniel, K., Titman, S., 1995, Financing investment under asymmetric information, Handbooks in Operational Research and Management Science, Jarrow, R. eds.  9, 721-766.

53.  #John, Kose, and Joseph Williams, 1985, Dividends, dilution and taxes, Journal of Finance 40, 1053-1070.

54.  #Miller, M., and K. Rock, 1985, Dividend policy under asymmetric information, Journal of Finance 40, 1031-52.

55.  #Myers, S.C., Majluf, N., 1984, Corporate financing and investment decisions when firms have information that investors do not have, Journal of Financial Economics 13, 187-221.

56.  #Spence, A.M., 1973, Job market signaling, Quarterly Journal of Economics 87, 355-79.

57.  *Wu, Xueping, and Zheng Wang, 2005, Equity Financing in A Myers-Majluf Framework with Private Benefits of Control , Journal of Corporate Finance , Vol. 11, No. 5 (October), 915-945.

58.  #Stiglitz, J., and A. Weiss, 1981, Credit rationing in markets with imperfect information, American Economic Review 71, 393-410.

 

Topic 5 (Dr. QI) Agency cost of debt and debt contract

·         Agency Theory and Bondholder-shareholder conflict

·         Debt covenant, creditor control rights and debt renegotiation

·         Banking-firm relationship & delegated monitoring

·         Debt structure

 

Readings: (important papers start with *, review papers start with @)

 

Classical and theoretical paper

1.      *Jensen, M., and W. Meckling, 1976, Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal of Financial Economics 3, 305-360.

2.      *Myers, S., 1977. The determinants of Corporate Borrowing, Journal of Financial Economics, 147-175.

3.      *Bernanke, B., and Gertler, M., 1989. Agency costs, net worth, and business fluctuations. American Economic Review 79, 14-31.

 

A. Debt covenants paper

4.      *Smith, Clifford W., and Warner, Jerold B., 1979. On financial contracting: An analysis of bond covenants. Journal of Financial Economics 7, 117-161.

5.      DeAngeloa, Harry, DeAngeloa, Linda, and Wruck, Karen H., 2002. Asset liquidity, debt covenants, and managerial discretion in financial distress: the collapse of L.A. Gear. Journal of Financial Economics 64, 3-34.

6.      *Billett, Matthew, King, Tao-Hsien Dolly, and Mauer, David. 2007. Growth Opportunities and the Choice of Leverage, Debt Maturity, and Covenants. Journal of Finance 62, 697-730.

7.      Chava, Sudheer, Kumar, Praveen, and Warga, Arthur. 2010, Managerial Agency and Bond Covenants. Review of Financial Studies 23, 1120-1148.

8.      Muffin, Justin. 2012. The supply-side determinants of loan contract strictness. Journal of Finance 67, 1565-1601.

 

B. Creditor rights control

9.      *Chava, Sudheer, and Roberts, Michael R., 2008. How does financing impact investment? The role of debt covenants. Journal of Finance 63, 2085-2121.

10.  Roberts, Michael R., and Sufi, Amir. 2009a. Control Rights and Capital Structure: An Empirical Investigation, Journal of Finance 64, 1657-1695.

11.  Nini, G., D. Smith, and A. Sufi, 2009, Creditor Control Rights and Firm Investment Policy, Journal of Financial Economics 92, 400-420.

12.  Demiroglu, Cem, and James, Christopher M., 2010. The Information content of bank loan covenants. Review of Financial Studies 23, 3700-3737.

13.  Feldhutter, P., Edith Hotchkiss, and Oguzhan Karakas, 2016. The value of creditor control in corporate bonds. Journal of Financial Economics, 121, 1-27.

 

C. Debt maturity

14.  *Barclay, M. J. & Smith, C. W. 1995. The maturity structure of corporate-debt. Journal of Finance, 50, 609-631

15.  *Diamond, D. W. 1991. Debt maturity structure and liquidity risk. Quarterly Journal of Economics 106(3), 709-737.

16.  Johnson, S. A. 2003. Debt maturity and the effects of growth opportunities and liquidity risk on leverage. Review of Financial Studies, 16(1), 209-236.

17.  *He, Zhiguo, and Wei Xiong, 2012. Rollover risk and credit risk. Journal of Finance 67, 391-430.

18.  Saretto, Alessio, and Heather E. Tookes, 2013. Corporate leverage, debt maturity, and credit supply: the role of credit default swaps. Review of Financial Studies 26, 1190-1247.

19.  Diamond, D. W., and Zhiguo He, 2014. A Theory of debt maturity: the long and short of debt overhang. Journal of Finance 69, 719-762.

20.  Badoer, D. C., and James, C. M., 2016. The determinants of long-term corporate debt issuances. Journal of Finance 71, 457-472

 

Topic 6 (Dr. QI) debt contract and financial institutions (cont.)

 

A. Bank relationships and delegated monitoring

21.  @Boot, A. W. A. 2000. Relationship banking: what do we know? Journal of Financial Intermediation 9, 7-25.

22.  *Diamond, D., 1984. Financial Intermediation and Delegated Monitoring, Review of Economic Studies 51, 393-414.

23.  *Rajan, R, 1992. Insiders and Outsiders: The Choice between Relationship and Arm's Length Debt, Journal of Finance 47, 1367-1400.

24.  *Petersen, M. and R. Rajan, 1994. The benefits of Lending Relationships: Evidence from Small Business Data, Journal of Finance 49, 3-37.

25.  Santos, J. A., and A. Winton, 2008. Bank loans, bonds, and information monopolies across the business cycles. Journal of Finance 63, 1315-359.

26.  Hale, G. and J. Santos, 2009. Do banks price their information monopoly? Journal of Financial Economics 93, 185-206.

27.  Drucker, Steven, Puri, Manju, 2009. On loan sales, loan contracting, and lending relationships. Review of Financial Studies 22, 2835-2872.

28.  Schenone, C., 2010. Lending relationships and information rents: do banks exploit their information advantage, Review of Financial Studies 23, 1149-1199.

29.  Bharath, Sreedhar T., Sandeep Dahiya, Anthony Saunders, and Anand Srinivasan. 2011. Lending relationship and loan contract terms. Review of Financial Studies 24, 1141-1203.

30.  Wang, Yihui, and Xia, Han, 2014. Do Lenders Still Monitor When They Can Securitize Loans? Review of Financial Studies 27, 2354-2391.

31.  Karolyi, S. A., 2017. Personal Lending Relationships. Journal of Finance 73, 5-49.

 

B. Debt renegotiation

32.  Chen, Kevin C. W. and Wei, K. C. John. 1993. Creditors' Decisions to Waive Violations of Accounting-Based Debt Covenants. The Accounting Review 68, 218-232.

33.  *Roberts, Michael, R., and Amir Sufi. 2009b. Renegotiation of financial contacts: evidence from private credit agreement. Journal of Financial Economics 93, 159-184.

34.  Denis, David, and Wang, Jing. 2014. Debt covenant renegotiations and creditor control right. Journal of Financial Economics113, 348–367.

35.  Roberts, M. R., 2015. The role of dynamic renegotiation and asymmetric information in financial contracting. Journal of Financial Economics 116, 61-81. 

 

C. Cross monitoring

36.  Booth, James R., 1992. Contract costs, bank loans, and the cross-monitoring hypothesis. Journal of Financial Economics 31, 25-41.

37.  Datta, Sudip, Iskandar-Datta, Mai, and Patel, Ajay, 1999. Bank monitoring and the pricing of corporate public debt. Journal of Financial Economics 51, 435-449.

38.  Beatty, A., Scott Liao, and Joseph Weber, 2012. Evidence on the determinants and economic consequences of delegated monitoring. Journal of Accounting and Economics 53, 555-576.

39.  Houston, Joel F., Chen Lin, and Junbo Wang. 2014. Does bank monitoring matter to bondholders. HKIMR working paper.

40.  Li, Bo, Purda, Lynnette, and Wang Wei, 2015. Senior lender control rights and cost of debt. Working paper, Tsinghua University.

 

D. Debt structure

41.  @Kale, Jayant R., and Meneghetti, Costanaza. 2011. The choice between public and private debt: A survey. IIMB Management Review 23, 5-14.

42.  Houston, J. and C. James, 1996. Bank information monopolies and the mix of public and private debt claims, Journal of Finance 51, 1863-89.

43.  Denis, D, Mihov V, 2003. The choice among bank debt, non-bank private debt, and public debt: evidence from new corporate borrowings. Journal of Financial Economics 70, 3-28. .

44.  Lin, C, Ma, Y, Malatesta, P, Xuan Y, 2013. Corporate ownership structure and the choice between bank debt and public debt. Journal of Financial Economics 109, 517-534.

45.  *Rauh, Joshua D., and Amir Sufi. 2010. Capital structure and debt structure. Review of Financial Studies 23, 4242-4280.

46.  Colla, Paolo, Filippo Ippolito, and Kai Li. 2013. Debt specialization. Journal of Finance 68, 2117-2141.

47.  Ivashina, V., B. Iverson, and D. Smith, 2016. The ownership and trading of debt claims in Chapter 11 restructurings. Journal of Financial Economics 119, 316-335.

48.  Lou, Yun, and Clemens A. Otto. 2015. Debt heterogeneity and covenants. Working paper. HEC Paris.

49.  Valta, P., 2016. Strategic default, debt structure, and stock returns. Journal of Financial and Quantitative Analysis 51, 197-229

 

Topic 7: (Dr. QI) Law and finance

·         Country-level factors: legal institutions & political connection

·         Market for corporate control

 

50.  @North, Douglass C. 1991. Institutions. Journal of Economic Perspectives 5, 97-112.

51.  @Gibbons, Robert. 1998. Incentives in Organizations. Journal of Economic Perspectives, 12(4): 115-132.

52.  @Malmendier, Ulrike. 2009. “Law and Finance” at the Origin. Journal of Economic Literature, 47(4): 1076-1108.

53.  Coase, Ronald, 1960. The problem of social cost. Journal of Law and Economics 3, 1-44.

 

A. Law and finance

54.  *La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishiny, 1998, Law and Finance, Journal of Political Economy 106, 1113-1155.

55.  Spamann, Holger. 2010. The “antidirector rights index” revisited. Review of Financial Studies 23, 467-486.

56.  Guiso, Luigi, Sapienza, Paola, and Zingales, Luigi. 2002. Does local financial development matter? Quarterly Journal of Economics 119, 929-969.

57.  *Acharya, V., Amihud, Y., and Litov, L., 2011. Creditor rights and corporate risk-taking. Journal of Financial Economics 102, 150-166.

58.  Qi, Y., Roth, L., and Wald, J.K., 2016, Creditor protection laws, debt financing, and corporate investment over the business cycles. Journal of International Business Studies, forthcoming.

59.  Campello, M., and M. Larrain. 2016. Enlarging the contracting space: collateral menus, access to credit, and economic activity. Review of Financial Studies 29, 349-383.

 

B. Political Risk

60.  Qi, Y., Roth, L., and Wald, J.K., 2010. Political rights and the cost of debt. Journal of Financial Economics 95, 202-226.

61.  Julio, B, and Y. Yook. 2012. Political uncertainty and corporate investment cycles. Journal of Finance 67, 44-83.

62.  Pastor, L, and P. Veronesi. 2012. Uncertainty about government policy and stock prices. Journal of Finance 67, 1219-1264.

63.  *Pastor, L, and P. Veronesi. 2013. Political uncertainty and risk premia. Journal of Financial Economics 110, 520-545.


Topic 8: (Dr. Zhao)

Corporate Governance: Ownership structure and the market for control

 

Sometimes I only list the latest papers and, if you want to read the classical papers, you can find them easily by reading those latest paper.

 

Readings: (important papers start with *, review papers start with @)

  1. @Becht, Marco, Patrick Bolton, and Ailsa Röell, 2003, Corporate Governance and Control, in George Constantinides, Milton Harris, and René Stulz, eds.: Handbook of the Economics of Finance (NorthHolland, Amsterdam).
  2. @Shleifer, A., and R. Vishny, 1997. A Survey of Corporate Governance, Journal of Finance 52, 737-783.
  3. @David Larcker, Brian Tayan, 2016, Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences, 2nd Edition.
  4. @The Handbook of the Economics of Corporate Governance, 2017

https://www.elsevier.com/books/the-handbook-of-the-economics-of-corporate-governance/hermalin/978-0-444-63530-3

 

A. Ownership structure

  1. Demsetz, H. and K. Lehn, 1985. The Structure of Corporate Ownership: Causes and Consequences, Journal of Political Economy 93, 1155-1177.
  2. Shleifer, A. and R. Vishny, 1986, Large Shareholders and Corporate Control, Journal of Political Economy 94, 461-488.
  3. *Morck, R., Shleifer, A., and R. Vishny, 1988, Management Ownership and Market Valuation: An Empirical Analysis, Journal of Financial Economics 20, 293-315.
  4. @Holderness, C.G., 2003. A survey of blockholders and corporate control. Econ. Policy Rev. 9 (1), 51-63.
  5. @Edmans, Alex, 2015, “Blockholders and Corporate Governance,” Annual Review of Financial Economics,
  6. @Edmans, Alex, Clifford G. Holderness, 2018, Blockholders: A Survey of Theory and Evidence, Handbook of Corporate Governance
  7. He, J., J. Huang, and S. Zhao. 2019. Internalizing governance externalities: The role of institutional cross-ownership. Journal of Financial Economics.
  8. Fabisik, Kornelia and Fahlenbrach, Rüdiger and Stulz, Rene M. and Taillard, Jérôme, 2020 Why Are Firms With More Managerial Ownership Worth Less? Fisher College of Business Working Paper No. 2018-03-024;

 

B. The market for control

  1. *Gompers, P., J. Ishii, and A. Metrick, 2003, Corporate Governance and Equity Prices, Quarterly Journal of Economics 118, 107-155.
  2. *Bertrand, Marianne, and Sendhil Mullainathan, 2003. Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy 111, 1043-1075.
  3. Shleifer, A., and L.H. Summers, 1988, “Breach of Trust in Hostile Takeovers,” in A. J. Auerbach ed., Corporate Takeovers: Causes and Consequences, Chicago, University of Chicago Press, 33-56.
  4. Stein, J., 1988 “Takeover Threats and Managerial Myopia,” Journal of Political Economy, Vol. 96, 61-80.
  5. Core, J., W. Guay, and T. Rusticus, 2006, “Does Weak Governance Cause Weak Stock Returns? An Examination of Firm Operating Performance and Analysts’ Expectations,” Journal of Finance 61, 655-687.
  6. Fos, Vyacheslav,2017, Thedisciplinary effects of proxy contests, Management Science 63(3), 655- 671.

 

Topic 9: (Dr. Zhao)

Corporate Governance: Boards of directors and executive compensation

 

A. Boards of director

  1. @Renée B. Adams, 2017, Boards, and the Directors Who Sit on Them, Handbook of the Economics of Corporate Governance
  2. @Adams, Renee B., Benjamin E. Hermalin, and Michael S. Weisbach. 2010. The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey. Journal of Economic Literature, 48(1): 58-107.
  3. @Hermalin, B., and M. Weisbach, 2003, Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature, Federal Reserve Bank of New York Economic Policy Review 9, 726.
  4. *Weisbach, M. 1988, Outside Directors and CEO Turnover, Journal of Financial Economics 20, 431-460.
  5. Hermalin, B. and M. Weisbach, 1998, Endogenously Chosen Boards of Directors and Their Monitoring of Management, American Economic Review 88, 96-118.
  6. *Yermack, D., 1996, Higher Market Valuation for Firms with a Small Board of Directors. Journal of Financial Economics 40, 185-211.
  7. Jiang, Wei, Hualin Wan, and Shan Zhao, 2015, Reputation concerns of independent directors: Evidence from individual director voting, Review of Financial Studies 29, 655-696.

 

B. Executive compensation

26.  @Frydman, C., Jenter, D., 2010. CEO compensation. Annual Rev. Financ. Econ. 2 (1),75.102

27.  @Edmans, Alex, Xavier Gabaix, and Dirk Jenter, 2017, Executive compensation: A survey of theory and evidence, Handbook of the Economics of Corporate Governance, Hermalin, B.E., Weisbach, M.S. (Eds.), Elsevier, Amsterdam,

  1. @Aggarwal, Rajesh, 2008, EXECUTIVE COMPENSATION AND INCENTIVES Handbook of EMPIRICAL CORPORATE FINANCE
  2. Jensen, M. and K. Murphy, 1990, Performance Pay and Top Management Incentives, Journal of Political Economy 98, 225-264.
  3. @ Murphy, K.,1999 Executive compensation, in O. Ashenfelter and D. Card eds., Handbook of Labor Economics, Vol. 3b, Ch. 38, 24852563 (1999).

 

Topic 10: (Dr. Zhao) Corporate Governance: Shareholder Activism

 

31.  @Gillan, Stuart L and Laura T. Starks, 2007, The Evolution of Shareholder Activism in the United States, Journal of Applied Corporate Finance • Volume 19 Number

32.  @Denes, Jonathan M. Karpoff and Victoria B. McWilliams. Thirty Years of Shareholder Activism: A Survey of Empirical Research, Journal of Corporate Finance, 2017, 44, 405-424

33.  Ferris, Fabrizio, 2012, Low-Cost’ Shareholder Activism: A Review of the Evidence

34.  @Yermack, D., 2010, “Shareholder Voting and Corporate Governance,” Annual Review of Financial Economics 2, 103-125.

35.  @Brav, A., Jiang, W., and Kim, H., 2009, Hedge fund activism: A review, Foundations and Trends in Finance 4, 185-246.

36.  @ Brav, A., Jiang, W., and Li, R., 2009, Governance by Persuasion: Hedge Fund Activism and the Market for Corporate Influence, Working Paper, Columbia University

37.  *Brav, Alon, Wei Jiang, Frank Partnoy, and Randall Thomas, 2008, Hedge fund activism, corporate governance, and firm performance, Journal of Finance 63, 1729–1775.

38.   McCahery, J., Sautner, Z., Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. J. Finance.

39.  Dasgupta,Amil, Vyacheslav Fos and Zacharias Sautner, 2020, Institutional Investors and Corporate Governance,  Foundations and Trends in Finance

 

Topic 11: (Dr. Huang) Initial Public Offerings

·         Why firms go public

·         IPO market timing

·         Pricing of IPOs

·         Long-run IPO performance

 

·         Readings: (Note: a classic paper “#”, a hot paper “*”, a review paper “@”)

1.      @Ritter, Jay and Ivo Welch, 2002. A Review of IPO Activity, Pricing, and Allocations, Journal of Finance 57, 1795-1828.

2.      @Brau, J. and S. Fawcett, 2006. IPOs: An analysis of theory and practice, Journal of Finance 61, 399-436.

3.      Pagano, Marco, Fabio Panetta, and Luigi Zingales, 1998. Why do companies go public? An empirical analysis, Journal of Finance 53, 27-64.

4.      Zingales, Luigi, 1995. Insider ownership and the decision to go public, Review of Economic Studies 62, 425–448.

5.      Celikyurt, Ugur, Merih Sevilir, and Anil Shivdasani, 2010. Going public to acquire? The acquisition motive in IPOs, Journal of Financial Economics 96, 345-363.

6.      Kim, Woojin., and Michael Weisbach, 2008. Motivations for public equity offers: An international perspective, Journal of Financial Economics 87, 281–307

7.      Aydogan Alti and Johan Sulaeman, 2012. When do high stock returns trigger equity issues? Journal of Financial Economics 103, 61-87.

8.      *Loughran, Tim, and Jay R. Ritter, 1995. The new issues puzzle, Journal of Finance 50, 23-51.

9.      Teoh, S. H., I. Welch, and T. J. Wong, 1998. Earnings management and the long-run market performance of initial public offerings, Journal of Finance 53, 1935-1974.

10.  Schultz, Paul, 2003. Pseudo market timing and the long-run underperformance of IPOs, Journal of Finance 58, 483-518.

11.  *Brav, Alon, Chris Geczy, and Paul Gompers, 2000. Is the abnormal return following equity issuance anomalous? Journal of Financial Economics 56, 209-249.

12.  #Rock, Kevin, 1986., Why new issues are underpriced, Journal of Financial Economics 15, 187-212

13.  Allen, Franklin, and Gary Faulhaber, 1989. Signaling by underpricing in the IPO market, Journal of Financial Economics 23, 303-323.

14.  Cliff, M., and Denis, D. 2004. Do initial public offering firms purchase analyst coverage with underpricing. Journal of Finance 59, 2871-2901.

15.  #Benveniste, Lawrence M. and Paul A. Spindt. 1989. How investment bankers determine the offer price and allocation of new issues, Journal of Financial Economics 24, 343-361.

16.  Loughran, Tim, and Jay R. Ritter, 2002. Why don't Issuers get upset about leaving money on the table in IPOs? Review of Financial Studies 15, 413-443.

17.  Purnanandam, Amiyatosh and Bhaskaran Swaminathan, 2004. Are IPOs Really Underpriced?, Review of Financial Studies 17, 811-848.

18.  Lowry, Michelle and G. William Schwert, 2004. Is the IPO pricing process efficient?, Journal of Financial Economics 71, 3-26.

19.  Lowry, Michelle, and Kevin Murphy, 2007. Executive stock options and IPO underpricing, Journal of Financial Economics 85, 39-65.

20.  Lowry, Michelle, 2003. Why does IPO volume fluctuate? Journal of Financial Economics 67, 3-40

21.  *Pastor, Lubos, and Pietro Veronesi, 2005. Rational IPO waves, Journal of Finance 60, 1713-1757.

22.  Mikkelson, Wayne, Megan M. Partch, and Kshitij Shah, 1997. Ownership and operating performance of companies that go public, Journal of Financial Economics 44, 281–307.

23.  Bernstein, S. 2015. Does going public affect innovation. Journal of Finance 70, 1365-1403.

 

Topic 12: (Dr. Huang) Mergers and Acquisitions

·         Drivers of M&A activity

·         Merger wave

·         Merger process

 

24.  #Jensen, Michael, 1986. Agency costs of free cash flow, corporate finance, and takeovers, American Economic Review 76, 323-329.

25.  #Jensen, Michael C; and Richard S. Ruback, 1983. The market for corporate control: The scientific evidence, Journal of Financial Economics 11, 5-50.

26.  @Andrade, Gregor, Mark Mitchell and Erik Stafford, 2001. New Evidence and Perspectives on Mergers, Journal of Economic Perspectives 15, 103-20.

27.  #Roll, Richard, 1986. The hubris hypothesis of corporate takeovers, Journal of Business 59, 197-216.

28.  Dong, M., Hirshleifer, D., Richardson, S., Teoh, S., 2006. Does investor misvaluation drive the takeover market? Journal of Finance 61, 725-762.

29.  Fu, F., Lin, L., Officer, M., 2013. Acquisitions driven by stock overvaluation: are they good deals? Journal of Financial Economics 109, 24-39.

30.  Shleifer, Andrei and Vishny, Robert W, 2003. Stock market driven acquisitions, Journal of Financial Economics 70, 295-311.

31.  *Harford, Jarrad, 1999. Corporate cash reserves and acquisitions. Journal of Finance 54, 1969-1997.

32.  Malmendiera, Ulrike, Tate, Geoffrey, 2008. Who makes acquisitions? CEO overconfidence and the market's reaction, Journal of Financial Economics 89, 20-43.

33.  Bertrand, M., Mullainathan, S., 2003. Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy 111, 1043-1075.

34.  Lee, Kyeong H., David Mauer, and Emma Xu, 2018. Human capital relatedness and mergers and acquisitions, Journal of Financial Economics 129, 111-135.

35.  Huang, Q, F. Jiang, E. Lie, and K. Yang. 2014. The role of investment banker directors in M&A, Journal of Financial Economics 112, 269–286.

36.  Mitchell, M.  and J. H. Mulherin, 1996. The impact of industry shocks on takeover and restructuring activity. Journal of Financial Economics 41, 193-229.

37.  Rhodes-Kropf, Matthew, and S. Viswanathan, 2004. Market valuation and merger waves, Journal of Finance 59, 2685-2718.

38.  *Rhodes–Kropf, Matthew, David T. Robinson, and S. Viswanathan, 2005. Valuation waves and merger activity: The empirical evidence, Journal of Financial Economics 77, 561-603.

39.  Harford, Jarrad, 2005. What drives merger waves? Journal of Financial Economics 77, 529-560.

40.  Luo, Y., 2005. Do insiders learn from outsiders? Evidence from mergers and acquisitions. Journal of Finance 60, 1951–1982.

41.  Boone, Audra and Harold Mulherin, 2007. How are firms sold? Journal of Finance 62, 847-875.

42.  Bargeron, L., Schlingemann, F.P., Stulz, R.M., Zutter C., 2008. Why do private acquirers pay so little compared to public acquirers? Journal of Financial Economics 89, 375-390.

43.  Li, Kai, Tingting Liu, Juan Wu, 2018. Vote avoidance and shareholder voting in mergers and acquisitions, Review of Financial Studies 31, 3176-3211.

 

Topic 13: (Dr. Huang) Mergers and Acquisitions (Cont’d)

·         Merger gains and losses

·         Agency costs, corporate governance and mergers

·         Cross-border M&As

 

44.  Bradley, M., A. Desai, and E.H. Kim, 1988. Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms, Journal of Financial Economics 21, 3-40.

45.  Fuller, Kathleen, Jeffry Netter, and Mike Stegemoller, 2002. What do returns to acquiring firms tell us?  Evidence from firms that make many acquisitions, Journal of Finance, 1763-1793.

46.  *Moeller,Sara, F. P. Schlingemann, and R.M. Stulz, 2005. Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave, Journal of Finance 60, 757-782.

47.  Matvos, G., Ostrovsky, M., 2008. Cross-ownership, returns, and voting in mergers. Journal of Financial Economics 89, 391403.

48.  Devos, Erik, Palani-Rajan Kadapakkam and Srinivasan Krishnamurthy, 2009. How do mergers create value? A comparison of taxes, market power, and efficiency improvements as explanations for synergies, Review of Financial Studies 22, 1179-1211.

49.  Hoberg, Gerard, and Gordon Phillips, 2010, Product market synergies and competition in mergers and acquisitions: A text-based analysis, Review of Financial Studies 22, 1179-1211.

50.  Harford, Jarrad, Mark Humphery-Jenner, Ronan G. Powell, 2012. The sources of value destruction in acquisitions by entrenched managers, Journal of Financial Economics.

51.  Ahern, K., 2012. Bargaining power and industry dependence in mergers, Journal of Financial Economics 103, 530-550.

52.  M. Zhao and K. Lehn, 2006. CEO turnover after acquisitions: Do bad bidders get fired? Journal of Finance 61, 1759-1812.

53.  *Masulis, Ronald W., Cong Wang, and Fei Xie, 2007. Corporate governance and acquirer return, Journal of Finance 62, 1851-89.

54.  Wang, C., Xie, F., 2009. Corporate governance transfer and synergistic gains from mergers and acquisitions. Review of Financial Studies 22, 829-858.

55.  Chari, A., Ouimet, P.P., Tesar, L.L., 2010. The value of control in emerging markets. Review of Financial Studies 23, 1741–1770.

56.  M.A. Ferreira, M. Massa, P. Matos, 2010. Shareholders at the gate? Institutional investors and cross-border mergers and acquisitions, Review of Financial Studies, 23, 601–644.

57.  I. Erel, R.C. Liao, M.S. Weisbach, 2012. Determinants of cross-border mergers and acquisitions, Journal of Finance, 67 (3) 1045–1082.

58.  Bris, A., Cabolis, C., 2008. The value of investor protection: Firm evidence from cross-border mergers. Review of Financial Studies 21, 605-648.

59.  Ahern, K., Daminelli, D., Fracassi, C., 2012. Lost in translation? The effect of cultural values on mergers around the world. Journal of Financial Economics 117, July 2015, 165–189.

60.  Dessaint, O. A. Goluboy and P. Volpin, 2017. Employment protection and takeovers, Journal of Financial Economics 125, 369-388.

 

End