Prof. Thomas Chemmanur
Office: Fulton 440
Phone: (617) 552 3980
e-mail: chemmanu@bc.edu
Web-page: www2.bc.edu/~chemmanu
Spring 2003
BOSTON COLLEGE
Wallace E. Carroll School of Management
Course Objective: The objective of this course is to introduce Ph.D
students to current research issues and tools in corporate finance and financial
intermediation, which will be of interest, in their dissertation research.
The course will be based primarily on research papers from theoretical and
empirical corporate finance, theoretical and empirical financial intermediation,
and advanced game theory. The students who can benefit the most from
this course are those who plan to write their dissertations in corporate
finance, financial institutions (and intermediation), and in related areas
in finance and economics (e.g., industrial organization, applied game theory,
privatization). However, students planning to write their dissertations
in other areas (e.g., market microstructure, asset pricing), but who wish
to obtain some exposure to current research in corporate finance, may also
benefit from the course.
Pre-requisites: Students will be expected to have already taken
MF891: Ph.D seminar in Corporate Finance (or have equivalent knowledge),
and an introductory doctoral-level course in game theory (or have equivalent
knowledge). For game theory, there have been numerous excellent and easily
accessible text books written in the last four or five years. I will mention
only three of these below:
1. Eric Rasmusen, Games and Information: An introduction to game theory,
Basil Blackell. (A basic book)
2. Gibbons, R., Game Theory for Applied Economists, Princeton University
Press, Princeton, New Jersey (intermediate level).
3. Fudenberg, D., and J. Tirole, Game Theory, M.I.T Press, Cambridge Massachusetts.
(Fairly advanced)
Course materials: Most of the classes will be based on academic papers. I plan to make these available to you as we go along. Papers have been included in this seminar for several reasons. Most are recent; all are provocative; and some are substantial contributions to the literature. Many of the papers are recent job market papers, which should prove particularly instructive to students. Unfortunately, the limited time available precludes including all the interesting papers on each topic. However, the papers that are included should provide students with an entry into each research topic, which they can follow up on if they are interested in doing research in that area.
Course Requirements: Since the objective of this course is to read
and understand recent work in Corporate Finance (theory and empirical) participants
(both presenters and non-presenters) are expected to spend adequate time
giving careful attention to the assigned readings before coming to class.
Other than papers on which I choose to lecture, each paper will be presented
by one participant nominated in advance for this purpose. All participants
will have to take responsibility for one or two lectures each, depending
on the size of the class. A critique of the paper(s) being presented
by each presenter has to be turned in by two previous selected non-presenters
on the day of the paper presentation, prior to the presentation (if one student
presents two papers, I require only one critique to be handed in, but covering
both papers presented ). This will work out to about five or six critiques
for each participant in the seminar to hand in.
Presentation Format: Each presentation must adhere strictly to the following
format (1) Statement of the problem studied; (2) Brief survey of the literature;
(3) Concise, intuitive, explanation of the argument producing the major results
(for theory papers) or empirical methodology; (4) Summary of main results;
(5) Critical examination of the paper; (6) Sketch of major extensions
to the paper with specific suggestions about possible solution techniques
(for theory) or empirical methodology/data for these extensions (students
who can effectively accomplish the last point will get extra credit).
Most important, each presentation must be both informative and entertaining.
Critique Format: Critiques must be between three to six pages in length (depending on the paper). The format of the critiques should be roughly along the following lines: (1) Statement of the problem studied; (2) Brief survey of the literature; (3) Concise, intuitive explanation of the argument producing the major results (for theory papers) or empirical methodology; (4) Summary of results; (5) Critical examination of the paper.
Course Evaluation and Grading: The course grade is determined as
follows:
a. Class presentations: 40%
b. Critiques of papers: 40%
c. Class Participation: 20%
Office Hours: For brief discussions, you can meet with me right after class (Th: 3:30 to 4:00 P.M.). Longer office hours can be scheduled by appointment (send me e-mail if you wish to make an appointment or wish to contact me for any other reason; I prefer e-mail to phone).
Outline of Topics
The main papers that will be used in the discussion of each topic are listed
below.
Topic One: The Going Public Decision and IPOs
Papers:
Chemmanur, T. and P. Fulghieri, 1999, “A Theory of the Going Public Decision,”
Review of Financial Studies, 12, 249-279.
Pagano, Panetta, and Zingales, 1998, “Why do companies go public? An Empirical
Analysis,” Journal of Finance 53, 27-64.
Helwage, J., and F. Packer, “The decision to go public: Evidence from corporate
bond issuers,” Ohio State University working paper.
Topic Two: Investment Bank Reputation, IPOs, and Junk Bonds
Papers:
Chemmanur, T., and P. Fulghieri, “Investment Bank Reputation, Information
Production, and Financial Intermediation,” Journal of Finance, 1994.
Fang, L., 2002, “Investment Bank Reputation, and the Price and Quality of
Underwriting Services,” working paper, the Wharton school (Job Market Paper)
Fernando, C., V. Gatchev, and P. Spindt, 2002, “ Wanna dance? How firms and
underwriters choose each other,” working paper, Tulane University (Job Market
Paper)
Topic Three: Venture Capital: Theory
Papers:
Chemmanur, T., and Z. Chen, 2002, “Angels, Venture Capitalists, and Entrepreneurs:
A Dynamic Model of Private Equity Financing,” Boston College Working paper.
Landier, A., 2002, “Start-up Financing: Banks versus Venture Capital,” MIT
working paper.
Hellman, T., 2002, “A Theory of Strategic Venture Investing,” Journal of
Financial Economics 64, 285-314.
Topic Four: Venture Capital Contracts, Corporate Venture Capital,
and Angel Financing: Empirical (One and a half classes)
Papers:
Kaplan and Stromberg, 2001, “Financial Contracting Theory Meets the Real
World: An Empirical Analysis of Venture Capital Contract,” University of
Chicago working paper (only this paper to be presented by a student).
Wong, A., 2001, “Angel finance: The other venture capital,” University of
Chicago working paper (job market paper).
Hochberg, Y. V., 2002, “Venture Capital and Corporate Governance in the Newly
Public Frim,” Stanford university working paper (job market paper). (To be
presented by the same student as the previous paper).
Lindsey, L., 2002, “The Venture Capital Kieretsu Effect: An Empirical Analysis
of Strategic Alliances Among Portfolio Firms,” Stanford University Working
Paper (job market paper) Gompers, P., and J. Lerner, 1998, “The determinants
of corporate venture capital success: organizational structure, incentives
and complementarities, “ NBER working paper. (to be presented by the same
student as the previous paper).
Topic Five: Corporate Spin-offs, Internal Capital Markets, and the
Diversification Discount (One and a half classes)
Papers:
Chemmanur, T. and A. Yan, 2002, “Corporate Control Contests and
the Disciplining Effects of Spin-offs: A Theory of Performance and
Value Improvements in Spin-offs,” Boston College working paper.
Hart, O., and B. Holmstrom, 2002, “A Theory of Firm Scope,” NBER and
MIT Working Paper
Rajan, R., H. Servaes, and L. Zingales, 2000, “The cost of diversity: The
diversification discount and Inefficient Investment,” Journal of Finance
55, 35-80.
Stein, J. C., 1997, Internal capital markets and the competition for corporate
resources, Journal of Finance 52, 111-133.
Campa and Kedia, “Explaining the Diversification Discount”, Journal of Finance
2002.
Villalonga, B., “Does Diversification Cause The "Diversification Discount"?
, Working Paper
Topic Six: Corporate Takeovers and Value Creation
Papers:
Fluck, Z., and A. W. Lynch, 1999, “Why do firms merge and then divest? A
Theory of financial synergy, “ Journal of Business 72, 319-346.
Rhodes-Kropf, M., and S. Viswanathan, 2002, “Market valuation and merger
waves,” Duke university working paper.
Shleifer, A., and R. Vishny, 2001, “Stock Market Driven Acquisitions,” Harvard
University working paper (to be presented in
conjunction with the previous paper).
Jovanovic, B., and S. Braguinsky, 2002, “Bidder Discounts and Target
Premia in Takeovers,” NBER Working paper.
Holmes, T. J., and J. A. Schmitz, 1995, “On the Turnover of Business Firms
and Business Managers,” Journal of Political Economy, October (to be
presented in conjunction with the previous paper).
Topic Seven: Mutual Funds
Papers:
Berk, J., and R. C. Green, 2002, “Mutual Fund Flows and Performance in Rational
Markets,” Carnegie Mellon Working Paper.
Mamayasky and Spiegel, 2001, “A Theory of Mutual Funds: Optimal Fund Objectives
and Industry Organization,” Yale School of Management Working paper.
Chevalier, J. A., and G. Ellison, 1997, “Risk Taking by Mutual Funds as a
response to incentives, Journal of Political Economy, 1167-1200.
Brown, K. C., W. V. Harlow, and L. T. Starks, 1996, “Of tournaments and temptations:
An analysis if Managerial Incentives in the Mutual Fund Industry,” Journal
of Finance (to be presented along with the previous paper).
Topic Eight: Partnerships
Papers:
Levin, J., and S. Tadelis, 2002, “A Theory of Partnerships,” Stanford University
working paper.
Farrel, J., and S. Scotchmer, 1988, “Partnerships,” Quarterly Journal of
Economics, 103(2), pages 279-297.
Morrison, A. D., and W. Wilhelm, 2003, “Partnership firms, Reputation, and
Human Capital,” Oxford University working paper.
Topic Nine: Long-Term Operating and Stock Return Performance Following
Security Issues
Papers:
Loughran, T. and J. Ritter, 1997, The Operating Performance of Firms Conducting
Seasoned Equity Offerings, Journal of Finance.
Barber, M., and J. D. Lyon, 1996, Detecting abnormal operating performance:
The empirical power and specification of test statistics, Journal of Financial
Economics 41, 359-399 (to be presented in conjunction with the previous paper).
Spiess, D. K., and J. A. Graves, 1999, The long-run performance of stock-returns
following debt offerings, Journal of Financial Economics 54, 45-73.
Barber, B., and J. Lyon, 1997, Detecting long-run abnormal stock returns:
the empirical power and specification of test statistics, Journal of Financial
Economics 43, 341-372 (to be presented in conjunction with the previous paper).
Ritter, J. R., 1991, The long-run performance of Initial Public Offerings,
Journal of Finance, March (Not to presented, but useful in discussing
the previous two papers).
Topic Ten: Security Design, Differential Information, and Long-term
Performance
Papers:
Axelson, U., 2002, “Security design with investor private information,” University
of Chicago working paper.
Garmaise, M., 2001, “Rational beliefs and security design,” Review of Financial
Studies, 14, 1183-1213.