Prof. Thomas
Chemmanur

Office:

Phone: (617) 552 3980

e-mail:

Web-page: www2.bc.edu/~chemmanu

Fall 2008

**BOSTON**** COLLEGE**

**MF891: Doctoral
Seminar in Corpor ate Finance**

__Course Objective__

This
course has the objective of introducing doctoral students to theoretical
research in corpor

** Pre-requisites:** Since many of the models
in corpor

1. Eric Rasmusen, *Games
and Inform ation: An introduction to
game theory, *Basil Blackell. (A basic book)

2. Gibbons, R., *Game
Theory for Applied Economists*, Princeton University Press, Princeton, New
Jersey (intermedi

3. Fudenberg, D., and J. Tirole, *Game Theory*, M.I.T Press,

** Books for supplementary
reading:**
Unfortun

1. Tirole, Jean, *The Theory of Corpor ate Finance , *

This is a new book by one of the top economists working
in corpor

2. J. A. de M*Theoretical Found ations
of Corporate Finance*, Princeton
University Press, 2002. This is an
earlier Ph.D. level text book.

There are many good MBA text books. Two advanced M.B.A
text books which summarizes the ideas behind some of the earlier theory papers,
and also much of the empirical liter

3. Copeland, T.A., and J.F. Weston, *Financial Theory and Corpor ate
Policy*, third edition, Addison-Wesley Publishing Company (this book will be
referred to as CW in the outline). Although this book will not help you with
any of the current research, it will give you a quick introduction and a
summary of the earlier theoretical and empirical research in corpor

4. Grinbl*Financial Markets and
Corpor ate Strategy*,
Irwin/McGraw-Hill, 1998. Chapters 17, 18 and 19 of this book provide a useful
discussion of issues of financing str

Of course, the standard text book on corpor

5. R. A. Brealey and S. C. Myers, Principles of Corpor^{th} Edition (

** Other course m** Most of the lectures will be based on
academic papers. I plan to make these available to you as we go along. The
papers directly relevant for class discussion on each topic are mentioned under
th

** Course Organiz** The first part of the course will
consist entirely of my lectures; the second part will be a combin

The course grade is determined as follows:

a. Class present

b. Class particip

c. Critiques of papers: 10%

c. Research Paper/synthesis: 20 %

d. Final Exam: 40%

** Office Hours:** Office hours for this
course will be after class Wednesday 5-30 to

**Outline of Topics**

__Part I: Fundamentals and
Tools__

The main papers th

__Topic One:__**Corpor ate Finance under
Perfect Capital Markets: The Modigliani-Miller Propositions on Capital
Structure.**

**Papers: **

Modigliani, F. and M. Miller "The Cost of Capital,
Corpor*American Economic Review,* June 1958,
261-297.

** Other reading:** M

__Topic Two:__**Taxes and Capital Structure**

**Papers:**

Modigliani, F. and M. Miller "Corpor*American Economic Review,* June 1963,
433-443.

Miller, M., "Debt and Taxes," *Journal of Finance*, June 1977, 32,
261-276.

** Other reading: **M

__Topic Three:__**Agency Problems and Capital Structure**.

**Papers:**

Jensen, M. and W. Meckling, "Theory of the Firm:
Managerial Behavior, Agency Costs, and Ownership Structure," *Journal of Financial Economics*, October
1976, 3, 305-360.

*Journal
of Financial Economics,* November 1977, 147-176.

Jensen, M., "Agency Costs of Free Cash Flow, Corpor*American Economic Review*, May 1986, 76,
323-329.

** Other reading: **M

__Topic Four:__**Adverse
Selection, Signaling, and Non-cooper ative
game theory.**

St

**Papers:**

Ackerlof, G. A., "The market for lemons: Quality
Uncertainty and the Market Mechanism," *The
Rand Journal of Economics.*

Spence, M., "Job Market Signaling," *Quarterly Journal of Economics* 87,
355-374.

Cho, *Quarterly Journal of Economics*, May 1987, 179-221.

The various text books I have mentioned above on game theory
will be directly useful for this part of the course (as well as for the other
parts as reference books for various tools from game theory applied to corpor

__Topic Five:__ Brief Review of Mechanism Design and the Revelation
Principle.

**Papers: **

Myerson, R., Mechanism Design, a Review, Unpublished
Working paper

Myerson, R., Nobel Memorial Lecture, reprinted in the *American Economic Review, 2008.*

__Topic Six:__**Adverse Selection and Capital Structure; Issuing various Corpor ate Securities Under Asymmetric Information.**

**Papers:**

Ross, S., "The Determin*Bell** Journal of Economics*, Spring 1977,
23-40.

Leland, H. and D. Pyle, "Inform*Journal of Finance*, 32, 1975 371-388.

Myers, S. and N. Majluf, "Corpor*Journal of Financial Economics*, June 1984,187-221.

** Other reading: **M

__Topic Seven:__**Dividend Policy Under Perfect Capital Markets** **and under Asymmetric Inform ation**

The Modigliani-Miller Proposition on Dividends. Dividend
Policy Under Asymmetric Inform

**Papers:**

Bh*Bell Journal of Economics*, Spring 1979, 259-270.

John, K. and J. Williams, "Dividends, Dilution, and
Taxes: A Signalling
Equilibrium," *Journal of Finance*,
September 1985, 40, 1053-1070.

Miller, M. and K. Rock, "Dividend Policy Under
Asymmetric Inform*Journal of Finance*, September 1985, 40,
1031-1051.

** Other reading: **M

__Topic Eight:__**Initial Public Offerings (IPOs): An Introduction**

**Papers:**

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

Chemmanur, T., 1993, The pricing of initial public
offerings: A dynamic model with inform*Journal of Finance* 48,
285-304.

Chemmanur, T., and P. Fulghieri, Investment bank reput*Journal of Finance*, 1994.

Allen, F. and G. Faulhaber, 1989, Signaling by
underpricing in the IPO market, *Journal
of Financial Economics* 23, 303-23.

__Topic Nine:__**Security Design/The Structure of Corpor ate
Liabilities**

**Papers:**

Gale, David and Martin Hellwig (1985), "Incentive
Comp*Review of Economic Studies*, 52, 646-663.

Townsend, R. (1979) "Optimal contracts and
Competitive Markets with Costly St*Journal of Economic Theory*, 21, 265-293.

Aghion, P., and P. Bolton, 1992, “An ‘Incomplete
Contracts’ Approach to Financial Contracting,” *Review of Economic Studies* 59, 473-494.

*Journal of Political Economy* 104:1
(January 1996), 1-25.

Hart, O. and J. Moore (1989), "Default and Renegoti

Harris, Milton and Artur Raviv (1989), "The Design
of Securities," *Journal of Financial
Economics*, 24, 255-287.

Allen, F. and D. Gale (1988) "Optimal Security
Design," *Review
of Financial Studies*

__Part II: Seminar on Some
Current Research Topics in Corpor ate
Finance__

In this part of the course, we will review in
some detail several recent papers in several areas of current research in
corpor*presented* in this part of the course should
also be critiqued by two students (thus, each student will have to turn in
multiple critiques). Students have to hand in their written critiques of each
paper on the day of its present

** Present** Each present

** Critique Form** Critiques must be between
three to six pages in length (depending on the paper). The form