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Course Outline FI-930, Theory of Corporate Finance

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Course Outline FI-930, Theory of Corporate Finance

    FI 9300

    Seminar in Corporate Finance

    J. Mack Robinson College of Business

    Georgia State University

    Fall 2005

Chip Ryan Wednesdays 1:00 5:00 Office Hours:

    1226 RCB Finance Conference Room -- 1200 By appointment

    404-651-2674 or drop by

    fnchcr@langate.gsu.edu

    Objectives: The objective of this course is to prepare doctoral students for research in corporate finance. In this seminar, we will develop an integrated framework for understanding the issues in corporate finance for the purpose of producing research that is publishable in high quality refereed academic journals. Generally, we will study theoretical or conceptual papers on a given topic, with the focus on identifying empirically testable hypotheses. We will then discuss one or more recent or seminal empirical papers on the subject.

    Course Materials: Journal articles. You are responsible for obtaining copies of the articles. Try www.jstor.org

    or Academic Search Premier on the library web site to get as many articles as possible on-line. Many of the forthcoming articles will be available on journal web sites.

    Reference Materials: You might find it useful to refer to an advanced Masters level/introductory Ph.D. level corporate text. I recommend Financial Theory and Corporate Policy (Copeland and Weston, Third edition, 1988

    Addison-Wesley) or the Fourth edition by Copeland, Weston, and Shastri. Additionally, you might find it useful to refer to any edition of Principles of Corporate Finance (Brealey and Myers or Brealey, Myers, and Allen).

    Grading: Your grade for the course will be determined as follows:

    (i) Presentations (25% of course grade) You must make at least four presentations of a paper (indicated by #).

    You will be the instructor and should make a succinct presentation of assigned paper. All students in the

    class should be prepared to participate in a rigorous discussion of the paper.

    (ii) Assignments (25% of course grade): The assignments can be problems, identification of research ideas,

    literature surveys, reviews, or short articles. The focus will be on analysis, logic, and how well you convey

    your ideas. Some assignments are on the syllabus, but others could be added during the term. (iii) Participation (25% of course grade): I expect you to have read and critiqued the assigned papers for a

    session thoroughly before class. I will evaluate your participation based on the quality of your

    contribution to class discussions. If the presenter makes a mistake, you should be familiar enough with the

    papers to identify and help correct the mistake. Thorough preparation and participation in every class is

    mandatory.

    (iv) Term Project (25% of course grade): The term project requires that you formulate and solve a specific

    and original problem in corporate finance. You have to identify the problem yourself. I suggest that you

    make an early start. The solution of the problem can be theoretical and/or empirical. The project will be

    evaluated based on clarity of problem formulation, the technical competence of the solution, and how well

    you express your ideas. Literature surveys do not constitute an acceptable term project. Some of you may

    be pursuing a topic as a potential dissertation. Additional work on that topic may be acceptable as the

    project if it is in the area of corporate finance or if it is amenable to an application of one of the techniques

    covered in this seminar. You should clear your paper with me before choosing this route. Although I do not

    require it, I encourage you to submit an abstract to me for feedback and approval of the topic by the middle

    of the term.

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    Grading Scale

    All grades will be assigned based on a 4 point scale: A (4), B (3), C (2), D (1), and F (0). Final grades will be assigned as follows.

    3.6 4.0 A 3.4-3.6 Gray Area

    3.0-3.4 B 2.8-3.0 Gray Area

    2.0-2.8 C

    1.0-2.0 D

    0.0-1.0 F

    If you fall in the gray area, I will ask to see your notebook of paper summaries (see below). You will receive the higher grade if your summaries are complete, logical, and in good order. If not, you will receive the lower grade. Presentations

    I will generally present and lead the discussion of the theory. Students will present related empirical papers. All students must make at least four presentations.

    Paper and Conceptual Summaries

    For each paper market with *** and for the two topics under Pre-Reading you should write a written summary in advance of the class in which the paper (or concept) is to be discussed. Your summary should (i) state the research question (ii) indicate why it is important (iii) report key findings and conclusions (iv) provide a brief critique of the paper and (v) outline any additional research ideas you identify. For individual papers, limit your summary to two pages, type written, one-inch margins, and a minimum 10-point font. For summaries of conceptual topics spanning multiple papers you may go up to five pages. Keep your summaries in a loose-leaf notebook, which you should bring to all classes. The summaries will serve as a set of study notes when you prepare for the comprehensive exams and as a quick reference to corporate finance literature when you pursue research. You should adhere to the size limitation. The size limitation provides two important benefits: (i) it forces you to synthesize the material and focus on the key issues (it redirects you from the trees back to the forest) and (ii) it helps you develop the ability to write concisely and logically.

    Academic Ethics

    I will not tolerate cheating or plagiarism and will prosecute any offenses. I encourage you to discus and debate ideas with your colleagues, but your written work must be your own ideas. Be careful not to plagiarize the work of other. When you discuss ideas, explain concepts, or provide comments on assignments you “help” your friends. When you allow your friend to copy your work, you are both academically dishonest and unethical. If you are not sure if something is ethical, it probably is unethical. Don‟t get in trouble – if in doubt, ask me.

     3

    Pre-course Reading

    You should make sure, either by reading the articles listed below or by reading a textbook treatment, that you understand the principles underlying the Tax and Bankruptcy-based theories of capital structure and the principle of separation of financing and investing/unananimity. Prepare a summary of these two concepts for your notebook

    (limit each summary to five pages or less).

     Tax and Bankruptcy-based theories of capital structure

    Copeland, Thomas E. and J. Fred Weston, Financial Theory and Corporate Policy, Third edition, 1988

    (Addison-Wesley) 437-543

     Franco Modigliani and Merton Miller, The cost of capital, corporation finance and the theory of

    investment, American Economic Review, (1958), 261-297

    Franco Modigiliani and Merton Miller, Corporate income taxes and the cost of capital, American

    Economic Review, 53 (June 1963), 433-443

     Merton Miller, Debt and Taxes, Journal of Finance, (1977), 261-275

     Harry DeAngelo and Ronald Masulis, Optimal capital structure under corporate and personal taxation,

    Journal of Financial Economics, 8 (1980),3-80

     J. Scott, A theory of optimal capital structure, Bell Journal Of Economics, (1976), 33-54

    Separation of financing and investing and unanimity foundations of the positive NPV rule

    Comment: Make sure that you understand the distinction between perfect and complete markets. Focus on

    the ideas and don‟t get lost in the math.

    Copeland, Thomas E. and J. Fred Weston, Financial Theory and Corporate Policy, Third edition, 1988

    (Addison-Wesley) 1-20; 109-128

    J. Hirshleifer, Investment decision under uncertainty: Choice-theoretic approaches, Quarterly Journal of

    Economics, (1965), 509-536

     Steiner Ekern and Robert Wilson, On the theory of the firm in an economy with incomplete markets, Bell

    Journal of Economics, 5 (1974), 171-180

     N. C. Neilsen, The investment decision of the firm under uncertainty and the allocative efficiency of

    capital markets, Journal of Finance, 31 (May 1976), 587-602

     E. Fama, The effect of a firm‟s investment and financing decisions on the welfare of its security holders,

    American Economic Review, 68 (1978), 272-284

    Reading Codes

    **** Read thoroughly before class, be prepared to discuss for class, and summarize in one or two pages # Paper to be presented by a student (approximately 30 minute presentation to leave time for discussion)

    I include other papers to provide you with an extensive reference list. Refer to these papers as necessary. S Survey Article recommended background reading

    Note: You are responsible for knowing the field of corporate finance, and thus by extension all of these papers,

    for the comprehensive exams.

    The following paper is pretty useful in identifying recent developments in corporate finance.

    Ritter, J. "Introduction to Recent Developments in Corporate Finance" May 2005, RitterFlyer.pdf

     4

    August 24

    Empirical evidence on tax-based capital structure theories

    *** R. Rajan and L. Zingales, What do we know about capital structure? Some evidence from international

    data, Journal of Finance 50 (1995), 1421-1460

    *** Sheridan Titman and Roberto Wessels, The determinants of capital structure choice, Journal of Finance 43

    (March 1988), 1-40

    *** # Graham, John R., “How Big Are the Tax Benefits of Debt?,” Journal of Finance 55(5), October 2000,

    1901-1941.

     Graham, John R., Debt and the marginal tax rate, Journal of Financial Economics 41 (1995) 41-73

    D. Givoly, C. Hayn, and A. Ofer, Taxes and capital structure: Evidence from firms‟ response to the tax

    reform act of 1986

    Michael Bradley, Gregg Jarrell, and E. Han Kim, On the existence of an optimal capital structure: Theory

    and evidence, Journal of Finance, 39 (July 1984)

    J. Kale, T. Noe, and G. Ramirez, The effect of business risk on corporate capital structure: Theory and

    evidence, Journal of Finance 46 (December 1991) 1693-1715

    Graham, John R., Debt and the marginal tax rate, Journal of Financial Economics 41 (1995) 41-73

    4. The importance of bankruptcy costs on capital structure

    *** G. Andrade and S. Kaplan, How costly is financial (not economic) distress? Evidence from highly

    leveraged transactions that become distressed, Journal of Finance 53 (1998) 1443-1493

    *** R. Haugen and L. Senbet, The insignificance of bankruptcy costs to the theory of optimal capital structure,

    Journal of Finance, 33 (1978), 383-393

    *** # Bris, Arturo, Ivo Welch, and Ning Zhu. The Costs of Bankruptcy The Journal of Finance, forthcoming.

    [July 2005]

     Weiss, Lawrence, Bankruptcy resolution - direct costs and violation of priority of claims, Journal of

    Financial Economics, 27 (1990) 285-314

    J. Ang, J. Chua, and J. McConnell, The administrative costs of bankruptcy: A note, Journal of Finance, 37

    (1982) 219-226

     E. Altman, A further empirical investigation of the bankruptcy cost question, Journal of Finance, 39 (1984)

    1067-1089

    J. Warner, Bankruptcy costs: Some evidence, Journal of Finance, 32 (1977) 337-347

    August 31

    6. Agency theory and the theory of the firm

    *** M. Jensen and W. Meckling, Theory of the firm: Managerial behavior, agency costs and ownership

    structure, Journal of Financial Economics, (1976), 305-360

    *** E. Fama and M. Jensen, Separation of ownership and control, Journal of Law and Economics 26 (June

    1983) 301-326

    *** E. Fama and M. Jensen, Organizational forms and investment decisions, Journal of Financial Economics

    (1985) 14 101-118

    *** Jensen, Michael C., The modern industrial revolution, exit, and the failure of internal control systems,

    Journal of Finance 48 (1993) 831-880

     5

    *** L. Zingales, In search of new foundations, Journal of Finance, 55 (2000), 1623-1653

    *** R. Coase, The nature of the firm, Economica, 4 (1937), 386-405.

    *** O. Hart and J. Moore, Property rights and the nature of the firm, Journal of Political Economy 98 (1990),

    1119-1158.

     E. Fama and M. Jensen, Agency problems and residual claims, Journal of Law and Economics 56 (1983)

    327-349

     E. Fama, Agency problems and the theory of the firm, Journal of Political Economy (1980) 88 288-307.

    ASSIGNMENT: Based on the above reading list, write an essay of no more than five pages of text, double-spaced, on the topic “What is a firm?” Use relevant citations to support your logic. Due on August 31.

September 7

    Agency theory explanations of capital structure and debt bonding

    *** S. Myers, Determinants of Corporate Borrowing, Journal of Financial Economics, 5 (1977) 147-175.

    *** M. Jensen, Agency costs of free cash flow, corporate finance and takeovers, American Economic Review

    76, 1986, 323-329.

    *** René Stulz, 1990, Managerial discretion and optimal financing policy, Journal of Financial Economics, 26,

    3-27

    S M. Harris and A. Raviv, The theory of capital structure, Journal of Finance, 46 (1991), 297-355 (also

    applies to information-based models)

    S M. Harris and A. Raviv, Errata: The theory of capital structure, Journal of Finance, 47 1992), 1659

     O. Hart, and J. Moore, 1995, Debt and seniority: an analysis of the role of hard claims in constraining

    management, American Economic Review, 85, 567-585

     S. Grossman and O. Hart, 1982, Corporate financial structures and managerial incentives, in The

    Economics of Information and Uncertainty, ed. J. McCall, University of Chicago Press, Chicago

    A. Barnea, R. Haugen, and L. Senbet, Market imperfections, agency problems and capital structure: A

    review, Financial Management 10 (1981), 7-22

    Empirical evidence on agency theory explanations of capital structure and free cash flow

    *** # Parrino, Robert and Michael Weisbach, Measuring Investment Distortions Arising from Stockholder-

    Bondholder Conflicts, Journal of Financial Economics, Vol. 53 (1999) 3-42

    ***# S. Kaplan, The effects on management buyouts on operating performance and value, Journal of Financial

    Economics, 24 (1989) 217-254

     K. Lehn and A. Poulsen, Free cash flow and stockholder gains in going private transactions, Journal of

    Finance, 44 (1989) 771-788

    W. Mikkelson and M. Partch, Managers‟ voting rights and corporate control, Journal of Financial

    Economics, 25 (1989) 263-290

    H. Demsetz and K. Lehn, The structure of corporate ownership: Causes and consequences, Journal of

    Political Economy, 93 (1985) 1155-1177

     6

    A. Agrawal and G. Mandelker, Managerial incentives and corporate investment and financing decisions,

    Journal of Finance, 42 (1987), 823-837

    S. Smith and J. Warner, On financial contracting: An analysis of bond covenants, Journal of Financial

    Economics, 7 (1979), 117-161

    ASSIGNMENT : You must do this assignment twice and in conjunction with another student. I will allow you to form your own two-person teams, but will become involved if necessary to produce a sufficient number of pairs. On a topic of your choice in corporate finance, write a research proposal. The proposal should outline the research question, review the relevant literature, describe the importance of the research and what we will learn, and describe the research approach. You must include at least three working papers in your reference list. The working papers must (i) be from a researcher with multiple top-tier publications or (ii) have been presented or be scheduled for presentation at the ASSA, the WFA, the European Finance Association, the NBER, or some other high-quality conference (only at the FMA or a regional conference does not count).

Proposal 1 is due on October 5

    Proposal 2 is due on November 2.

September 14

    A Primer on asymmetric information models

    *** G. Akerlof, The market for “lemons”: Quality, uncertainty, and the market mechanism, Quarterly Journal

    of Economics 89 (1970), 488-500

    *** M. Spence, Job market signaling, Quarterly Journal of Economics 87, (1973), 355-79

     Thakor, A., Game theory in finance, Financial Management, 20 (1) (1991), 71-94

    Signaling models of capital structure

    *** H. Leland and D. Pyle, Informational asymmetries, financial structure and financial intermediation,

    Journal of Finance, 32 (1977), 371-87.

     S. Ross, The determination of financial structure: The incentive signalling approach, Bell Journal of

    Economics 8 (Spring 1977), 23-40. (subject of the Thakor article above)

    Timing theories and evidence

     K. Jung, Y Kim, and R. Stulz, Timing, investment opportunities, managerial discretion, and the security

    design issue, Journal of Financial Economics 42, (1996) 159-186

     Baker, Malcolm , Greenwood, Robin, and Wurgler, Jeffrey, The maturity of debt issues and predictable

    variation in bond returns, Journal of Financial Economics70 (2003) 261-291

    *** # Baker, Malcolm, and Jeffrey Wurgler. "Market Timing and Capital Structure." Journal of Finance 57

    (February 2002): 1-32.

    *** # M. Leary and M. Roberts, Do Firms Rebalance their Capital Structures? The Journal of Finance,

    forthcoming, December 2005.

     7

    September 21

    Product market interactions with corporate financing decisions

    *** J. Brander and T. Lewis, Oligopoly and financial structure: The limited liability effect, American

    Economic Review, 76 (1986), 956-970.

    *** Titman, S., 1984. The Effect of Capital Structure on a Firm's Liquidation Decision. Journal of

    Financial Economics 13, 137-151.

    *** Maksimovic, Vojislav and Sheidan Titman, Financial policy and reputation for product quality, Review of

    Financial Studies, 4 (1991) 175-200

    ***# MacKay, P., and G. Phillips. 2004. How Does Industry Affect Firm Financial Structure? Click here to

    download in Adobe PDF Format. Forthcoming Review of Financial Studies

    ***# Kale, J. and H. Shahrur. 2005. Capital structure and characteristics of supplier and customer markets,

    working paper.

    *** Campello, M. Capital structure and product markets interactions: Evidence from business cycles, Journal

    of Financial Economics 68 (2003) 353-378

    J. Chevalier, Capital structure and product market competition: Empirical evidence from the supermarket

    industry, American Economic Review, 85 (1995), 415-435.

    J. Chevalier, Do LBO supermarkets charge more? An empirical analysis of the effects of LBOs on

    supermarket pricing, Journal of Finance 4 (1995) 1095-1112

    Sundaram, Anant, Teresa A. John, and Kose John, An empirical analysis of strategic competition and firm

    values: The case of R&D competition, Journal of Financial Economics 40 (1996) 459-486

    Phillips, Gordon M., Increased debt and industry product markets: An empirical analysis, Journal of

    Financial Economics 37 (1995) 189-238

    Kovenock, Dan and Gordon Phillips, Capital structure and product market behavior: An examination of

    plant exit and investment decisions, Review of Financial Studies, 10 (1997) 767-803

    September 28

    Pecking order models of capital structure*

    *** S. Myers and N. Majluf, corporate financing and investment decisions when firms have information that

    investors do not have, Journal of Financial Economics, 13, (1984), 187-221

    *** S. Myers, The capital structure puzzle, Journal of Finance, 39 (1984), 575-592

    *** Thomas H. Noe, Capital structure and signaling game equilibria, Review of Financial Studies, 1 (Winter

    1988), 331-356

    Empirical evidence on pecking order theories**

    *** # Frank, Murray and Vidhan Goyal, Testing the Pecking Order Theory of Capital Structure, Journal of Financial

    Economics 67(2), February 2003, 217-248.

    *** # Fama, Eugene and Kenneth R. French, Testing Tradeoff and Pecking Order Predictions about Dividends and

    Debt, Review of Financial Studies, 15 (2002) 1-33

    *** Lakshmi, Shyam-Sunder and Stewart C. Myers, Testing static trade-off against pecking order models of capital

    structure, Journal of Financial Economics 51 (1999) 219-244

    W. Mikkelson and M. Partch, Valuation effects of security offerings and the issuance process, Journal of

    Financial Economics 15, (1986), 31-60

     8

    C. Smith, Investment banking and the capital acquisition process, Journal of Financial Economics 15,

    (1986) 3-29

    J. Helwege and N. Liang, Is there a pecking order? Evidence from a panel of IPO firms, Journal of

    Financial Economics 40, (1996), 429-458

    October 5

    Payout policy theories

    *** M. Miller and K. Rock, Dividend policy under asymmetric information, Journal of Finance, 40 (1985),

    1031-51

    *** F. Allen, A. Bernardo and I. Welch, A theory of dividends based on tax clienteles, Journal of Finance, 55

    (2000) 2499-2536

    S Black, Fischer, The dividend puzzle, Journal of Portfolio Management (1976) 5-8

    *** K. John and J. Williams, Dividends, dilution, and taxes: A signalling equilibrium, Journal of Finance 40

    (1985), 1053-70

    M. Miller and F. Modigiliani, Dividend policy, growth, and valuation of shares, Journal of Business

    (October 1961) 34 411-433

    P. Kumar, Shareholder-manager conflict and the information content of dividends, Review of Financial

    Studies (1988) 1, 111-136

    S. Bhattacharya, Imperfect information, dividend policy and the “bird in the hand” fallacy, Bell Journal of

    Economics 10, (1979), 259-270

    J. Kale and T. Noe, Dividends, uncertainty, and underwriting costs under asymmetric information, Journal

    of Financial Research, (1990) 4, 265-277

     Empirical evidence on dividend policy and share repurchase

    *** # Fama, E. and K. French (2001) Disappearing dividends: Changing firm characteristics or lower propensity

    to pay? Journal of Financial Economics, 60, 3-43.

    *** # Stephens, C., Jagannathan, and M. Weisbach (2000) Financial flexibility and the choice between dividends

    and stock repurchases, Journal of Financial Economics, Vol. 57 355-384.

     Stephens, C. and M. Weisbach (1998) Actual share reacquisitions in open-market repurchase programs,

    Journal of Finance, 53, 313-333.

     Guay, Wayne and Jarrad Harford, The cash-flow permanence and information content of dividend

    increases versus repurchases, Journal of Financial Economics 57 (2000) 385-415

    J. Aharony and I. Swary, Quarterly dividend and earnings announcements and stockholders‟ return: An

    empirical analysis, Journal of Finance 35 (1980), 1-12

    M. Rozeff, Growth, beta, and agency costs as determinants of dividend payout ratios, Journal of Financial

    Research (Fall 1982) 5 249-259

    P. Asquith and D. Mullins, Jr., The impact of initiating dividend payments on shareholders‟ wealth,

    Journal of Business (1982) 56, 27-44

    P. Healy and K. Palepu, Earnings information coveyed by dividend initiations and omissions, Journal of

    Financial Economics (1988) 21, 149-176

    K. Eades, Empirical evidence on dividends as a signal of firm quality, Journal of Financial and

    Quantitative Analysis (1982) 17, 471-502

    P. C. Venkatesh, The impact of dividend intitiation on the information content of earnings announcements

    and return volatility, Journal of Business (1989) 46, 191-211

     9

    F. Easterbrook, Two agency-cost explanations of dividends, American Economic Review, 74 (1984), 650-

    659

    T. Vermaelen, Common stock repurchases and market signalling: An empirical study, Journal of Financial

    Economics 9 (1981) 138-183

    T. Vermaelen, Repurchase tender offers, signalling and managerial incentives, Journal of Financial and

    Quantitative Analysis 19 (1984) 163-181

    R. Comment and G. Jarrell, The relative signalling power of Dutch-auction and fixed-price self tender

    offers and open market share repurchases, Journal of Finance 46 (September 1991)

    Denis, David J. Diane K. Denis, and A. Sarin, The information content of dividend changes: Cash flow

    signaling, overinvestment, and dividend clienteles, Journal of Financial and Quantitative Analysis 29

    (1994) 567-587.

    ASSIGNMENT : You must do this assignment twice and in conjunction with another student. I will allow you to form your own two-person teams, but will become involved if necessary to produce a sufficient number of pairs. On a topic of your choice in corporate finance, write a research proposal. The proposal should outline the research question, review the relevant literature, describe the importance of the research and what we will learn, and describe the research approach.

Paper for review, due October 19, will be distributed. Proposal 1 is due.

    October 12

     The Going-Public Decision and Venture Capital

    *** Zingales, L., 1995. Inside ownership and the decision to go public. Review of Economic Studies, 62 425-

    448.

    ***# P. Gompers and J. Lerner, Money chasing deals? The impact of fund inflows on private equity valuations,

    Journal of Financial Economics, 55 (2000) 281-325

    ***# Pagano, M., F. Panetta, and L. Zingales (1998) Why do companies go public? An empirical analysis.

    Journal of Finance, 53 27-64.

    ***# Gompers, P., Lener, J., and Sharfstein, D., 2005. Entrepreneurial spawning: Public corporations and the

    genesis of new ventures. 1986-1999, Journal of Finance, forthcoming.

    http://www.people.hbs.edu/dscharfstein/spawnersfinal.pdf

    *** Kaplan, Steven N.; Strömberg, Per., Financial Contracting Theory Meets the Real World: An Empirical

    Analysis of Venture Capital Contracts. Review of Economic Studies, Apr 2003, Vol. 70 Issue 2, p281

     T. Chemmanur and P. Fulghieri, A theory of the going-public decision, Review of Financial Studies, 12

    (1999) 249-279

     J. Lerner, Venture capitalists and the decision to go public, Journal of Financial Economics, 45 (1994)

    293-316

    J. Lerner, Venture capitalists and the oversight of private firms, Journal of Finance, 50 (1995) 301-318.

    P. Gompers and J. Lerner, Conflict of interest in the issuance of public securities: Evidence from venture

    capital, Journal of Law and Economics, 42 (1999) 1-28

    P. Gompers and J. Lerner, An analysis of compensation in the US venture capital partnership, Journal of

    Financial Economics, 51 (1999) 3-44

     10

    P. Gompers and J. Lerner, Venture capital distributions: Short-run and long-run reactions, Journal of

    Finance, 53 (1998) 2161-2183

    P. Gompers, Grandstanding in the venture capital industry, Journal of Financial Economics, 42 (1996)

    133-156

    P. Gompers, Optimal investment, monitoring, and the staging of venture capital, Journal of Finance, 50

    (1995) 133-156

    M. Kim and J. Ritter, Valuing IPOs, Journal of Financial Economics, 53 (1999) 409-437

    C. Barry, C. Muscarella, J. Peavy III, and M. Vetsuypens, The role of venture capital in the creation of

    public companies: Evidence from the going-public process, Journal of Financial Economics, 27 (1990)

    447-471

    B. Black and R. Gilson, Venture capital and the structure of capital markets: banks versus stock markets,

    Journal of Financial Economics, 47 (1998) 243-277

    A. Gande, M. Puri, and A. Saunders, Bank entry, competition and the market for corporate securities

    underwriting, Journal of Financial Economics, 54 (1999) 165-195

    M. Puri, Commercial banks as underwriters: Implications for the going public process, Journal of

    Financial Economics, 54 (1999) 133-163

    October 19

    Initial Public Offerings -- Theory

    *** Allen, Franklin and Gerald R. Faulhaber, Signaling by underpricing in the IPO market, Journal of

    Financial Economics 23 (1989), 303-323

    *** Rock, Kevin, Why new issues are underpriced, Journal of Financial Economics 15 (1986), 187-212

    *** Benveniste, Lawrence M. and Paul A. Spindt, How investment bankers determine the offer price and

    allocation of new issues, Journal of Financial Economics 24 (1989), 343-361

    S Ritter, J., "Investment Banking and Securities Issuance," Chapter 5 of North-Holland Handbook of

    theEconomics of Finance edited by George Constantinides, Milton Harris, and René Stulz, (2003).

    Baron, David P., A model of the demand for investment banking advising and distribution services for new

    issues, Journal of Finance 37 (1982), 955-976

    Grinblatt, M. and C. Y. Hwang, 1989, Signaling and the pricing of new issues, Journal of Finance 44

    (1989), 393-420

    Welch, Ivo, Seasoned offerings, imitation costs, and underpricing of initial public offerings, Journal of

    Finance 44 (1989), 421-449

    Chemmanur, T.J., and P. Fulghieri. "Investment Bank Reputation, Information Production, and Financial

    Intermediation," Journal of Finance, 49 (1994), 57-79.

    Initial Public Offerings -- Empirical Papers

    *** # A. Ljungqvist, and W. Wilhelm, IPO allocations: Discriminatory or discretionary?, Journal of Financial

    Economics, 65 (2002) 167-201

    ***# Gompers, Paul A., and Josh Lerner. "The Really Long-Run Performance of Initial Public Offerings: The

    Pre-Nasdaq Evidence." Journal of Finance 58, no. 4 (August 2003).

    *** T. Loughran and J. Ritter, The new issues puzzle, Journal of Finance, 50 (1995) 23-51.

    *** T. Loughran and J. Ritter, Why don‟t issuers get upset about leaving money on the table in IPOS?, Review

    of Financial Studies, 15 (2002) 413-443. and discussion by K. Daniel, 445-454

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