FIN750 Class Web Page, Summer '19

Jacksonville University

Instructor: Maggie Foley

 

The Syllabus  

                                                                                                                                                    

Weekly SCHEDULE, LINKS, FILES and Questions 

Date

Coverage, HW, Supplements

-        Required

 

Videos (optional)

Pre-Class

Textbook

 

1.      Microeconometrics Methods and Application (FYI, required)

2.     Microeconometrics Using Stata (FYI, required)  

3.      Handbook of corporate finance volume 1: empirical corporate finance (chapter 1 only, handout)

4.      Handbook of corporate finance Volume 2: empirical corporate finance (chapter 13 only, handout)

5.      Handbook of economics of corporate governance (Chapters 5, 6, 7 handout)

·         Chapter 5  The Evidence on Mergers and Acquisitions: A Historical and Modern Report

·         Chapter 6, Boards, and the Directors Who Sit on Them  

·         chapter 7, executive compensation 

6.      Handbook of economics of finance, volume 2A: corporate finance

·         chapters 7 – endogeneity, handout,

·         chapter 7 ppt here ,  

·         chapter 7 the video made by the author, fyi

 

 

Textbook information:

 

1. Microeconometrics: Methods and Applications (required)

Hardcover: 1056 pages

Publisher: Cambridge University Press; unknown edition (May 9, 2005)

Language: English

ISBN-10: 0521848059

ISBN-13: 978-0521848053

 

 

2. Microeconometrics Using Stata (required)
Paperback: 706 pages

Publisher: Stata Press; 2 edition (March 9, 2010)

Language: English

ISBN-10: 1597180734

ISBN-13: 978-1597180733

 

3. Handbook of Corporate Finance, Volume 1: Empirical Corporate Finance, 1st Edition (optional)

Series: Handbooks in Finance (Book 1)

Hardcover: 558 pages

Publisher: North Holland; 1 edition (June 4, 2007)

Language: English

ISBN-10: 9780444508980

ISBN-13: 978-0444508980

 

4. Handbook of Corporate Finance, Volume 2: Empirical Corporate Finance, 1st Edition (optional)

Series: Handbooks in Finance (Book 2)

Hardcover: 608 pages

Publisher: North Holland; 1 edition (November 7, 2008)

Language: English

ISBN-10: 0444530908

ISBN-13: 978-0444530905

 

 

5. The Handbook of the Economics of Corporate Governance 1st Edition (optional)

Series: Handbooks in Economics (Book 1)

Hardcover: 760 pages

Publisher: North Holland; 1 edition (October 4, 2017)

Language: English

ISBN-10: 0444635300

ISBN-13: 978-0444635303

 

6.  Handbook of the Economics of Finance: Corporate Finance 1st Edition (optional)

Series: Handbook of the Economics of Finance

Hardcover: 858 pages

Publisher: North Holland; 1 edition (January 2, 2013)

Language: English

ISBN-10: 0444535942

ISBN-13: 978-0444535948

 

 

 

 

First Month

 

First,

First Month

Corporate Governance and Executive Compensation

 

Reading list

 

**************** Papers, Friday afternoon *************************

For each of the following paper, please prepare your answers to the following questions.

1.      Why is this paper important in the literature? What is its contribution?

2.      What is the research question in this paper?

3.      What are the hypotheses that are brought up in the paper?

4.      How do the authors test the hypotheses?

5.      What are the major findings?

6.      What are the potential problems in this paper? (You might refer to the ‘future research ideas’ in the conclusion session for ideas)

7.      If you were the researchers in this field, how can you do a follow up study based on this paper?

 

·         Jensen, M., and W. Meckling, 1976, “Theory of the firm: managerial behavior, agency costs and ownership structure,” Journal of Financial Economics 3, 305-360 (Friday afternoon)

 

 A summary FYI only --- by OLUSEUN PASEDA, Ph.D. Candidate

Another summary ppt FYI only by Peng, Lee, Tang

 

·         Stuart L. Gillan, Jay C. Hartzell, and Robert Parrino, 2009, Explicit vs. Implicit Contracts: Evidence from CEO Employment Agreements, Journal of Finance, LXIV, 4, 1629-1655. (Friday afternoon)

·         Chhaochharia, Vidhi and Yaniv Grinstein. 2009. CEO Compensation and Board Structure. Journal of Finance 64(1) (February), 231-261  (Friday afternoon)

·         Guthrie, Sokolowsky, and Wan, 2012, CEO Compensation and Board Structure Revisited, Journal of Finance 67(3) (June), 1149-1168 ( https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1680476) (Friday afternoon)

·         Governance with multiple objectives: Evidence from top executive turnover in China, JCF, 2009 (This paper is also used for replication study) (Friday afternoon)

·         Harris, M., and A. Raviv, 1988, “Corporate governance: voting rights and majority rules,” Journal of Financial Economics 20, 203-235 (optional)

·         Adams, Renee, and Daniel Ferreira, 2006, A theory of friendly boards, Journal of Finance 62, 217–250 (optional)

·         Core, John E., Robert W. Holthausen, and David F. Larcker, 1999, Corporate governance, CEO compensation, and firm performance, Journal of Financial Economics 51, 371–406 (optional)

 

 

Questions based on the papers, might appear in the final (Will be posted before 6/2/2019)

1.      Coming soon

2.      Coming soon

3.      Coming soon

4.      Coming soon

 

 

 

 

 

Research ideas based on the five articles.

5.      The higher the fraction of outside financing from equity, the higher the agency costs are. Is that true? Between firms with high outside financing from equity and the peers with low rate, are there any differences in terms of the monitoring costs and the bonding costs associated with agency costs?

image001.jpg

1.      Is there any association between CEO turnover in the future and CEO contract being either implicit or explicit?

2.      Is there any association between CEO turnover in the future and the contents in the contract? Which component in the contract is the key determinants to the potential CEO turnover? Salary, incentives?

3.      Did the potential CEO have any bargaining power when the contract is in the negotiation stage?

4.      With an implicit contract, the CEO tends to be more risk averse or more risk lover? What about with explicit contract? (Can use the model in JM 1976 to identify the hypothesis)

5.      CEO compensation and board structure could be revisited for those with an implicit contract and those with an explicit contract?

6.      Are CEO compensation’s equity components defined implicitly or explicitly in the CEO contract?

Also, we can check in more detail regarding the components in the CEO compensation and how it is explained in the CEO contract. This is important, because once it is stated in the contract, board has no rights to change this part. Then this paper’s rational is questionable.

7.      Is board supervision on CEO compensation an optimal solution to increase shareholder values?

8.      First, it would be interesting to explore whether changes in board structure affected other board policies, such as CEO replacement policies or nomination policies of new directors (From Chhaochharia and Crinstein, 2009)

9.      Second, it would be important to explore whether these changes in boards had an actual impact on corporate performance in the long run (From Chhaochharia and Crinstein, 2009)

10.  There are other factors, such as market conditions, firms’ vision and strategies, composition of different stakeholders and their relative influences etc., could also affect the relative importance of firm performance in shareholders’ objective function and therefore their incentive to discipline managers on the basis of firm performance. Analyzing how these factors affect turnover-performance links is a fruitful direction for future research (JCF, Chang, Wong, 2009)

Second, First Month

********Replication using Stata, Saturday Morning******** 

 

1.     Microeconometrics Methods and Application (FYI, required)

2.     Microeconometrics Using Stata (FYI, required)  Saturday morning) (pages 445-464, 1-14)

My study using the above books as guideline for code and econometric model (FYI)

 

Option 1

Paper: Governance with multiple objectives: Evidence from top executive turnover in China,  JCF, 2009    

 

PPT (New)

 

**** Part I: the CEO turnover dataset** (new, or update, same as in class exercise)

Raw Data:(TurnOver_orig.dta, same as in class exercise, to get table 1, need GTA2008.dta, see below)

Code in stata (this version works. Bugs were fixed) – same as did in class

 

Results:

Final dataset, ready for merging with finance dataset

Table 1       Table 2 left         Table 2 right

(To get Table 1 and Table2, run the following code, with both data – TurnOver_orig.dta and GTA2008.dta)    Code here

 

Videos Part I -1,      Part I-2

 

 

 

** Part II and III Merging with finance data and logit regression   ** 

 

Raw data (GTA2008.dta, Finance data here  )

 

Code in stata (updated, final version) (Part II and part III both working, final version, however, to run the code, pleases download the ado zip file, unzip it, and then add all files to stata15/ado/base folder. Those files are the commands that stata15 typically does not recognize. Here is this zip file)

 

Videos Part II (merged data)   (new)             

Videos part III (logit model)   (new)

 

Results Table 6    table 7   Table 8  (new)

 

 

 

 

Sample replication study FYI (on blackboard)

 

Replication  Structure Word File FYI (will be updated soon)

Replication variable definition  

 

Option 2:

Paper: Going overboard? On busy directors and firm value, JBF, 2012, Cashman, Gillan, Jun (Saturday morning)

Data (coming soon)

Codes (coming soon)

Results (coming soon)

 

 

 

 

**********   Book Chapters, Saturday afternoon *************************

 

****** book chapters *****

·         Board, chapter 6,  handbook of the economics of corporate governance (Saturday afternoon)

 

Questions based on the papers, might appear in the final (Will be posted before 6/2/2019)

1.      Coming soon

 

 

·         Executive compensation, chapter 7 (optional), handbook of the economics of corporate governance 

 

 

 

Third, First Month

Assignments - 1st week  (Due when next class starts in June)

1.      Pick one article assigned for reading and write a critique (3-5 pages long)  (fyi: how to critique a journal article)

2.      Replicate one of the above two studies using Stata (due by the end of the semester) *** updated

3.      Pick one article assigned for reading and write a summary (5-10 pages long)

 

 

 

Second Month

 

First, Second  Month

Corporate Finance: Capital Structure and Merger and Acquisition

 

Reading list

 

****** papers******

 

·         *Modigliani, F., and M. Miller*, 1958, “The cost of capital, corporation finance, and the theory of investment,” American Economic Review 48, 261-297

 

PPT summary of MM 1958 (new)       A Summary by Dr. Cooney (FYI)

 

·         *John R. Graham1,2 and Mark T. Leary*, “A Review of Empirical Capital Structure Research and Directions for the Future” Annual Review of Financial Economics, Vol. 3:309-345 (Volume publication date December 2011)

 

                

 

·         *Thomas J. Chemmanuran, Yingmei Chengb, Tianming Zhang*, “Human capital, capital structure, and employee pay: An empirical analysis”, 

 

 

·          Corporate Financial Policy and the Value of Cash by FAULKENDER and WANG, JF2006 (This paper is also used for replication study)

 

      PPT (new)

 

 

·         JOHN R. GRAHAM*, 2000, “How Big Are the Tax Benefits of Debt?”, THE JOURNAL OF FINANCE • VOL. LV, NO. 5 • OCT. 2000 (optional, updated)

·         Miller, M., 1977, “Debt and taxes,” Journal of Finance 32, 261-275 (optional)

·         Jensen M., 1986, “Agency costs of free cash flow, corporate finance and takeovers,” American Economic Review 76, 323-329.  (optional)

·         DeAngelo, H. and Roll, R. (2015), How Stable Are Corporate Capital Structures? (word file here) Journal of Finance, 70, 373–418 .(optional)

·         *Myers, S., and N. Majluf, 1984, “Corporate financing and investment decisions when firms have information that investors do not have,” Journal of Financial Economics 13, 187-221 (optional)

·         Ross, S., 1977, “The determination of financial structure,” Bell Journal of Economics 8, 23-40 (optional)

·         Harris, M., and A. Raviv, 1991, “The theory of capital structure,” Journal of Finance 46, 297-355 (optional)

·         DeAngelo, Harry and Ron Masulis, 1980, “Optimal capital structure under corporate taxes” , Journal of financial economics, Vol. 8, No. 1, pp. 3-27 (optional)

 

 

Questions based on the papers, might appear in the final (Will be posted before 6/2/2019)

1.      Coming soon

2.      Coming soon

 

 

****** book chapters *****

·         Executive compensation, chapter 7  handbook of the economics of corporate governance  (optional)

·         Merger and Acquisition, chapter 5, (optional) handbook of the economics of corporate governance 

·         Capital structure, chapter 13,  Christopher Parsons1 and Sheridan Titman,  handbook of empirical corporate finance volume 2 (optional, updated, since we will read another literature review article related to this topic)

 

 

Questions based on the papers, might appear in the final (Will be posted before 5/30/2019)

1.      Coming soon

2.      Coming soon

 

 

Potential research questions

1.     CEO pay and leverage is found to be positively correlation, but to what extent?

§  In other words, the positive association between CEO pay and leverage is found to be statically significant. Is it economically significant as well? Is a 1% increase in leverage associated with a significant increase in CEO compensation?

2.     CFO is the one that made the leverage decision, not CEO. Why not study CFO compensation and leverage?

3.     CEO compensation includes salary, stock options, bonus, and other implicit components, such as inside debt (pension and deferred compensation), and perks. So it is better to focus on CEO’s total compensation.

4.     High leverage, so high bankruptcy potential and therefore higher CEO pay. Why not just the other way around? CEO pay is high, so he is more anxious to make higher profits so that he can keep his job. Therefore, he issued lots of debt for risky investments. High CEO pay è high leverage. This paper found high leverage è high CEO pay. It is an endogeneity problem (X and Y could happen simultaneously).

5.     Marginal cash value could be variant cross industries. The paper does not control for industry.

6.     Marginal cash value could be more valuable during financial crisis. Is that true?

7.     The future research directions mentioned in Graham and Leary.

 

 

 

 

 

 

 

 

 

Nobel Prize Lecture Series (FYI)

Advanced Video: Robert Shiller Nobel Prize Lecture on Stock Valuation

Advanced Video: Eugene Fama Nobel Prize Lecture on Market Efficiency

Second,  Second  Month

Research Methodology: Event Study and Endogneity

 

Reading list

 

****** papers******

·         Corporate Financial Policy and the Value of Cash by FAULKENDER and WANG, JF2006 (This paper is also used for replication study)

 

****** book chapters *****

·         Event study, Chapter 1 handbook of Corporate Finance, Volume 1: Empirical Corporate Finance

 

Another paper about Event study (FYI, hard to follow, new) and its  Ppt is easy to follow (new)

 

 

·         Endogeneity, chapters 7 (skip sections 4, 5, 6, and 8, pages 520-557 & 560-566, new)

handbook of economics of finance: corporate finance 

 

·        chapter 7 ppt here (new

·        chapter 7 the video made by the author (new, fyi)

·         Endogeneity: An inconvenient truth (full version), by John Antonakis (video, FYI, new)

 

 

Event Study Stata Code (new)

Data  (new)

Videos Part I    Part II     (both new)

 

For the above study, please refer to the following to merge the original datasets available at http://dss.princeton.edu (new)

 

* http://dss.princeton.edu/usingdata/stata/analysis/eventstudy.html

* http://dss.princeton.edu/usingdata/stata/analysis/eventstudydataprep.html

 

*use http://dss.princeton.edu/sampleData/eventdates.dta  /* about 11k */

*save C:\stata15mp\eventdates.dta

*use http://dss.princeton.edu/sampleData/stockdata.dta, clear  /* about 90m */

*save C:\stata15mp\stockdata.dta

 

/* 

* merge two datasets

 

use C:\stata15mp\eventdates.dta, clear

drop targetname           *file size will be a lot smaller after deleting this variable*

sort company_id           *sort so that can merger later*

save eventdate_1, replace

 

use C:\stata15mp\stockdata, clear

sort company_id             *for merging*

merge company_id using eventdate_1

drop if _merge != 3       *only keep observations with the complete event*

save eventda, replace

 

Questions based on event study and endogneity, might appear in the final (Will be posted before 6/2/2019)

a.      Coming soon

b.      Coming soon

 

 

 

********Useful information from Princeton’s website FYI*******

Event Studies with Stata (FYI)

  An event study is used to examine reactions of the market to events of interest. A simple event study involves the following steps:

·         Cleaning the Data and Calculating the Event Window

·         Estimating Normal Performance

·         Calculating Abnormal and Cumulative Abnormal Returns

·         Testing for Significance

·         Testing Across All Events

·          

 

Other Websites for event study FYI

https://eventstudymetrics.com/ (event study metrics software and data, will be open source software, and free soon)

https://sourceforge.net/p/eventstudy/code/ci/master/tree/ (stata, have code ado file)

https://eventstudytools.com/data-sources (have data, source, explanation)

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html (misc data and many more)

 

 

 

 

Event Replication TTU Finance PhD seminar 2009(all new, FYI)

Assignment

Code Q1      Code Q2

report 

Dataset 1      Dataset 2 

 

Third,  Second  Month

Replication using Stata 

 

Revisit the paper of last class Paper: Governance with multiple objectives: Evidence from top executive turnover in China,  JCF, 2009  

Discuss on Methodology, Code, Results, Econometrics models.

 

Option 1 (required, updated)

Paper:   Corporate Financial Policy and the Value of Cash by FAULKENDER and WANG, JF2006 (using long term event study methodology)

 

PPT (new)

 

Data - use GTA2008.dta

Code – here it is 5_24_2019 version  (updated)

Videos    Part I        Part II         Part III          Part IV         Part V (all new)

               (Table-1)         (Table-1)            (Table-2)                (Tables-3,4)            (Table-5)

 

 

 

 

Fourth, Second  Month

 Assignments of the second week (Due by 6/17)

4.      Pick an article assigned for reading and write a critique  (fyi: how to critique a journal article)

5.      Pick an article assigned for reading and write a summary

6.      Replication of the paper by Faulkender and Wang, 2006 (group project, report tables 1-5, new)

7.      Replication of the paper by Chang and Wong, 2009 (from the previous class, report the results, except table 3, new)

8.      Based on the event study code as given, change the event window to [-3,+3] and the estimation window to  [-90, -30]. Report the t value and p value for the significant test of the daily abnormal return , between [-3,3] and the t test result for the hypothesis of CAR=0 (group project, new)

 

Final Exam

(posted on blackboard under course introduction

due by 6/9 11:59pm)