MF895: Advanced Topics In Corporate Finance

Prof. Thomas Chemmanur
Office: Fulton 440
Phone: (617) 552 3980
e-mail: chemmanu@bc.edu
Web-page: www2.bc.edu/~chemmanu
Spring 2006
                               

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 (thus, in some sense, the course can also be called, “dissertation topics in corporate finance:” many papers that will be discussed are papers from the current or previous year’s academic job market). The course will be based primarily on research papers from theoretical and empirical corporate finance, theoretical and empirical financial intermediation, and advanced game theory.  There are also papers in the current year in areas related to information economics and asset pricing; and also areas at the interface of corporate finance and accounting research. 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, or accounting) may also benefit from the course.

Pre-requisites: Normally I expect students 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). This year, however, I only want students to be taking MF891 concurrently (or in the past). For game theory, there have been numerous excellent and easily accessible textbooks 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 (Wednesday: 5:00  to 6:00 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: (Jan 18 and Jan 25) IPOs, the Going Public Decision, and Investment Banking. (Two Classes)

Papers:

Chemmanur, T., S. He, and D. Nandy, 2005, “The Going Public Decision and the Product Market”, Working Paper, Boston College.

Chemmanur, T., and P. Fulghieri, 1999, “A Theory of the Going Public Decision”, Review of Financial Studies, 12, 249-279.

Pichler, P., and W. William., 2001, “A Theory of the Syndicate: Form Follows Function”. Journal of Finance 56, 2237-64.

Hoberg, G., 2005, “Strategic Underwriting in Initial Public Offers”, Working Paper, University of Maryland.

Hoberg, G., 2005, “Competitive Underwriting in Initial Public Offers”, Working Paper, University of Maryland. 

Katrina E., R. Michaely, and M. O’Hara, 2005, “Competition in Investment Banking: Proactive, Reactive, or Retaliatory?”, Working paper, Cornell University.

Topic Two: (Feb 1) IPOs Versus Acquisitions (One Class)

Papers:

Chemmanur, T., and O. Bayar, 2005, “IPOs or Acquisitions? A Theory of the Choice of Exit Strategy by Entrepreneurs and Venture Capitalists”, Working Paper, Boston College.

Officer, M., 2005, “The Price of Corporate Liquidity: Acquisition Discounts for Unlisted Targets.”, Working Paper, University of Southern California.

Officer, M., A. Poulsen, and M. Stegemoller, 2005, “Information Asymmetry and Acquirer Returns”, Working paper, University of Southern California.

Topic Three:  (Feb 8 and Feb 15) Entrepreneurial Finance, Venture Capital, and the Management of Innovation (Two Classes)

Papers:

Lerner, J. and A. Scholar, 2002, “The Liquidity Puzzle: Theory and Evidence From Private Equity”, Working Paper, NBER

Kaplan, S., P. Stromberg, and B. Sensoy, 2005, “What are Firms? Evolution from Birth to Public Companies”, Working Paper, University of Chicago.

Bemgtsson, O., 2005, "A Study of Repeated Relationships between Venture Capitalists and Entrepreneurs" University of Chicago (Job Market Paper)

Subramanian, K., 2005, “Access, Ownership, Independent Venture Capital, Strategic Venture Capital and Internal Capital Markets”, Working Paper, University of Chicago.

Gromb, D., and D. Scharfstein, 2003, “Entrepreneurship in Equilibrium”, Working Paper, Harvard Business School.

Aghion, P., M. Dewatripont, and J. Stein, 2005, “Academic Freedom, Private-Sector Focus, and the Process of Innovation”, Working Paper, Harvard Business School.

Topic Four: (Feb 22 and Mar 1) Spin-offs and Carve-outs, Internal Capital Markets, and the Diversification Discount (Two Classes)

Papers:

Chemmanur, T., and D. Nandy, 2005, “How is Value Created in Spin-offs? A look Inside the Black Box,” Working Paper, Boston College.

Chemmanur, T., and A. Yan, 2004, “A Theory of Corporate Spin-offs”, Journal of Financial Economics. 

Habib, M., B. Johnson, and N. Naik, 1997, “Spin-offs and Information”, Journal of Financial Intermediation 6, 153-176.

Nanda, V., 1991,  “On the Good News in Equity Carve-outs”, Journal of Finance 46, 1717-1737.

Nanda, V. and M.P. Narayanan, 1999, “Disentangling Value: Financing Needs, Firm Scope, and Divestitures”, Journal of Financial Intermediation 8, 174-204

Xuan, Y., 2005, "Empire-Building or Bridge-Building? Evidence from New CEOs' Internal Capital Allocation Decisions,"  Harvard University, (Job Market Paper)

Dittmar, A., 2004, "Capital Structure in Corporate Spin-offs," Journal of Business 77.

Topic Five: (March 15) Corporate Disclosure (One Class)

Papers:

Chemmanur, T., and P. Fulghieri, 2005, “Optimal Disclosure and Litigation Rules Around New Equity Issues”, Working Paper, Boston College.

Fisher, P., and R. Verrecchia., 2000 “Reporting Bias”, The Accounting Review, 75, 229-245

Fisher, P., and P. Stocken, 2001 “Imperfect Information and Credible Communication”, Journal of Accounting Research, 39, 119-134.

Immodiano, G., and I. Pagano, 2005, “Optimal Regulation of Auditing”, Working Paper.

Topic Six: (Mar 22) Seasoned Equity Offerings and Institutional Trading (One Class)

Papers:

Chemmanur, T., and Y. Jiao, 2005, “Information Production, the SEO Discount, and Underpricing: A Model of Seasoned Equity Offerings”, Working Paper, Boston College.  

Chemmanur, T., S. He, and G. Hu, 2005, "The Role of Institutional Investors in Seasoned Equity Offerings," Working Paper, Boston College.

Gerard, B., and V. Nanda, 1993, “Trading and Manipulation Around Seasoned Equity Offerings”, Journal of Finance 48, 213-245.

Altinkilic, O, and R. hansen, 2003, "Discounting and Underpricing in Seasoned Equity Offers," Journal of Financial Ecnomics 69.

Liu, Y, and P. Malatesta, 2005, "Credit Ratings and the Pricing of Seasoned Equity Offers," Working Paper, University of Washington.

Topic Seven: (Mar 29 and Apr 5) Interaction Between Corporate Finance and Asset Pricing (Two Classes)

Papers:

Albuquerque, R., and N. Wang, 2004, “An Agency Based Asset Pricing Model”, Working Paper, Boston University.

Dow, J., G. Gorton, and A. Krishnamurthy, 2004, “Equilibrium Investment and Asset Prices under Imperfect Corporate Control”, Forthcoming, American Economic Review.

Gremers, M., and V. Nair, 2004, “Governance Mechanisms and Equity Prices”, Forthcoming, Journal of Finance.

Gompers, P., J. Ishii, and A. Metrick, 2003, “Corporate Governance and Equity Prices”, Quarterly Journal of Economics 118, 107-155.

Nieuwerburgh, S., and L. Veldkamp, 2005, “Information Acquisition and Portfolio Under-Diversification”, Working Paper, New York University.

Topic Eight: (Apr 19) Dividends and Stock Repurchases (One Class)

Papers:  

Bulan, L., N, Subramanian, and L, Tanlu., 2005, "When are Dividend Omissions Good News?", Working Paper, Brandies University. (Guest Speaker, Laarni Bulan of Brandies University will be presenting)

Oded, J., 2005 “Why do Firms Announce Open-Market Repurchase Programs?”, Review of Financial Studies, 18. 271-300.

Chowdhry, B., and V. Nanda, 1994, “Repurchase Premia As a Reason for Dividends: A Dynamic Model of Corporate Payout Policies”, Review of Financial Studies, 7, 321-350.  

Topic Nine: (Apr 26) Topics in Banking (One class)

Papers:

Chemmanur, T., and P. Fulghieri, 1994, “Reputation, Renegotiation, and the Choice between Bank Loans and Publicly Traded Debt”, Review of Financial Studies.

Chemmanur, T., and P. Fulghieri,  1994 “Investment Bank Reputation, Information Production, and Financial Intermediation,” Journal of Finance.

Schenone, Carola, 2004, “The Effect of Bankign Relationships on the Firm’s IPO Underpricing,” Journal of Finance 59, 2903-2958

Drucker and Puri, 2005, “On the Benefits of Concurrent Lending and Underwriting,” Working Paper, Duke University and Columbia University.

  

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