FIN 7345 Empirical Corporate Finance

Spring 2009

Professor: David C. Mauer Office: SOM 3.710

Phone: 972-883-5844 E-mail: dmauer@utdallas.edu
Office hours: F 3:30 - 5:00 pm Class Time: M 9:30 am - 12.15 pm (SOM 2.803)

Course Objective

The purpose of this course is to review some of the key areas of corporate finance research. We
will discuss a selective set of research papers, with an emphasis on recent empirical research.
The ultimate goal of our discussions is to formulate new avenues for research in corporate
finance, which may ultimately lead to dissertation topics and/or publishable papers.

Course Material

The course material consists of journal articles and working papers that I will assign in advance.
See the list of topics and articles on the following pages.

Grading

Presentations 20%
Participation 20%
Referee reports 20%
Paper 40%

Presentations

Each student will present several papers during the course of the semester. You are expected to
gain an understanding of the central idea of each paper, the data and research methodology, and
the conclusions drawn. Ideally, you should also be able to critically evaluate each paper and
suggest possible extensions.

Class Participation

I have high expectations for attendance, preparation, and participation. You should carefully and
critically read each paper that is assigned before class and think about weaknesses and possible
extensions. Hopefully, this will provide the basis for several interesting class discussions and
perhaps future research.
Referee Reports

You must write two referee reports during the semester. First, pick a subject area that interests
you. Next, find working papers on SSRN that you would like to referee and check with me
whether the papers are appropriate for review. Finally, write a two to three page referee report
on each paper that follows the guidelines in the appendix at the end of this syllabus. You may
give me your referee reports at any time during the semester. The reports must be turned in on
or before Monday, May 4.

Research Paper

The paper requirement is intended to get you started on research in corporate finance. Ideally, it
is the beginning of a thesis proposal and/or research publication. You should, at a minimum, do
the following:

ƒ Develop a research hypothesis and explain how it contributes to the existing literature.
ƒ Write a review of the related literature.
ƒ Describe how you intend to test your hypothesis. In particular, describe how you will get
the data and what statistical methods you will employ.

If time permits, you should also start to gather some of the data and perhaps run some of the
statistical analysis. We will talk more about his project in class, and you are encouraged to come
by my office for guidance. The research paper must be turned in on or before Monday, May 4.

Readings

Below is a list of articles that forms the foundation for this course. I will assign articles one
week in advance. We will only discuss a portion of the articles.

Articles are available from the following sources:

• Articles published in the Journal of Finance are available from the JF website
(http://www.afajof.org/journal/browse.asp) and JStor (www.jstor.org).
• Articles published in the Journal of Financial Economics are available from Elsevier
Science (www.sciencedirect.com).
• Articles published in the Review of Financial Studies are available from the RFS website
(www.rfs.org).
• For articles published in other journals, you can go to the library website, which lists
websites for access to articles in all major journals.
• Many working papers are available on SSRN (www.ssrn.com) or on the authors’ personal
websites.

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A. Capital Structure

1. Agency Theory – Debt and Private Action

Jensen, M. C., and W. H. Meckling, 1976, Theory of the firm: Managerial behavior, agency costs
and ownership structure, Journal of Financial Economics 3, 305-360.

Myers, S. C., 1977, Determinants of corporate borrowing, Journal of Financial Economics 5,

147-175.

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

Green, R., 1984, Investment incentives, debt and warrants, Journal of Financial Economics 13,
115-136.

Titman, S., 1984, The effect of capital structure on a firm’s liquidation decision, Journal of
Financial Economics 13, 137-151.

Jensen, M. C., 1986, Agency costs of free cash flow, corporate finance and takeovers, American
Economic Review 76, 323-329.

Berger, P. G., E. Ofek, and D. L. Yermack, 1997, Managerial entrenchment and capital structure
decisions, Journal of Finance 52, 1411-1438.

Morellec, E., 2004, Can managerial discretion explain observed leverage ratios?, Review of
Financial Studies 17, 257-294.

Childs, P. D., D. C. Mauer, and S. H. Ott, 2005, Interactions of corporate financing and
investment decisions: The effects of agency conflicts, Journal of Financial Economics 76, 667-
690.

Eisdorfer, A., 2008, Empirical evidence of risk-shifting in financially distressed firms, Journal of
Finance 63, 609-637.

2. Asymmetric Information – Private Information

Leland, H. E., and D. H. Pyle, 1977, Information asymmetries, financial structure, and financial
intermediation, Journal of Finance 32, 371-387.

Ross, S. A., 1977, The determination of financial structure: The incentive-signalling approach,
Bell Journal of Economics 8, 23-40.

Myers, S. C., and N. S. Majluf, 1984, Corporate financing and investment decisions when firms
have information that investors do not have, Journal of Financial Economics 13, 187-221.

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3. Taxes

Miller, M. H., 1977, Debt and taxes, Journal of Finance 32, 261-275.

DeAngelo, H., and R. W. Masulis, 1980, Optimal capital structure under corporate and personal
taxation, Journal of Financial Economics 8, 3-29.

Fama, E., and K. R. French, 1998, Taxes, financing decisions and firm value, Journal of Finance
53, 819-843.

Graham, J. R., 2000, How big are the tax benefits of debt?, Journal of Finance 55, 1901-1941.

Green, R. C., and B. Hollifield, 2003, The personal-tax advantages of equity, Journal of
Financial Economics 67, 175-216.

Graham, J. R., 2003, Taxes and corporate finance: A review, Review of Financial Studies 16,
1074-1128.

4. Trade-Off Theory

Leland, H. E., 1994, Corporate debt value, bond covenants, and optimal capital structure,
Journal of Finance 49, 1213-1252.

Leland, H. E., 1998, Agency costs, risk management, and capital structure, Journal of Finance
53, 1213-1243.

Rajan, R. G., and L. Zingales, 1995, What do we know about capital structure? Some evidence
from international data, Journal of Finance 50, 1421-1460.

Shyam-Sunder, L., and S. C. Myers, 1999, Testing static tradeoff against pecking order models
of capital structure, Journal of Financial Economics 51, 219-244.

Chirinko, R. S., and A. R. Singha, 2000, Testing static tradeoff against pecking order models of
capital structure: A critical comment, Journal of Financial Economics 58, 417-425.

Fama, E. F., and K. R. French, 2002, Testing tradeoff and pecking order predictions about
dividends and debt, Review of Financial Studies 15, 1-33.

Frank. M., and V. Goyal, 2003, Testing the pecking order theory of capital structure, Journal of
Financial Economics 67, 217-248.

Fama, E. F., and K. R. French, 2005, Financing decisions: Who issues stock?, Journal of
Financial Economics 76, 549-582.

Leary, Mark T., and M. R. Roberts, 2005, Do firms rebalance their capital structures?, Journal of
Finance 60, 2575-2619.

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Flannery, M. J., and K. P. Rangan, 2006, Partial adjustment toward target capital structure,
Journal of Financial Economics 79, 469-506.

Kisgen, D. J., 2006, Credit ratings and capital structure, Journal of Finance 61, 1035-1072.

Strebulaev, I., 2007, Do tests of capital structure theory mean what they say? Journal of Finance
62, 1747-1787.

Kayhan, A., and S. Titman, 2007, Firm histories and their capital structures, Journal of Financial
Economics 83, 1-32.

Lemmon, M. L., M. R. Roberts, and J. F. Zender, 2008, Back to the beginning: Persistence and
the cross-section of corporate capital structure, Journal of Finance 63, 1575-1608.

5. Dynamic Capital Structure

Fischer, E., R. Heinkel, and J. Zechner, 1989, Dynamic capital structure choice: Theory and
tests, Journal of Finance 44, 19-40.

Mauer, D. C., and A. J. Triantis, 1994, Interactions of corporate financing and investment
decisions: a dynamic framework, Journal of Finance 49, 1253-1277.

Goldstein, R., N. Ju, and H. E. Leland, 2001, An EBIT-based model of dynamic capital structure,
Journal of Business 74, 483-512.

Hennessy, C. A., and T. M. Whited, 2005, Debt dynamics, Journal of Finance 60, 1129-1165.

Hennessy, C. A., and T. M. Whited, 2007, How costly is external financing? Evidence from a
structural estimation, Journal of Finance 62, 1705-1745.

Gamba, A., and A. Triantis, 2008, The value of financial flexibility, Journal of Finance 63,
2263-2296.

Tsyplakov, S., 2008, Investment frictions and leverage dynamics, Journal of Financial
Economics 89, 423-443.

6. Financial Distress and Bankruptcy

Andrade, G., and S. N. Kaplan, 1998, How costly is financial (not economic) distress? Evidence
from highly leveraged transactions that became distressed, Journal of Finance 53, 1443-1493.

Bris, A., I. Welch, and N. Zhu, 2006, The costs of bankruptcy: Chapter 7 liquidation versus
chapter 11 reorganization, Journal of Finance 61, 1253-1303.

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Kalay, A., R. Singhal, and E. Tashjian, 2007, Is chapter 11 really costly? Journal of Financial
Economics 84, 772-796.

Davydenko, S., and J. Franks, 2008, Do bankruptcy codes matter? A study of defaults in France,
Germany, and the U.K., Journal of Finance 63, 565-608.

Eckbo, B. E., and K. S. Thorburn, 2008, Automatic bankruptcy auctions and fire-sales, Journal
of Financial Economics 89, 404-422.

7. Timing

Baker, M., and J. Wurgler, 2002, Market timing and capital structure, Journal of Finance 57, 1-
32.

Welch, I., 2004, Capital structure and stock returns, Journal of Political Economy 112, 106-131.

Jenter, D., 2005, Market timing and managerial portfolio decisions, Journal of Finance 60, 1903-
1949.

Hovakimian, A., 2006, Are observed capital structures determined by equity market timing?,
Journal of Financial and Quantitative Analysis 41, 221-243.

Alti, A., 2006, How persistent is the impact of market timing on capital structure?, Journal of
Finance 61, 1681-1710.

Dittmar, A. K., and R. F. Dittmar, 2008, The timing of financing decisions: An examination of
the correlation in financing waves, Journal of Financial Economics 90, 59-83.

8. Product Markets

Phillips, G., 1995, Increased debt and industry product markets: An empirical analysis, Journal
of Financial Economics 37, 189-238.

Chevalier, J., 1995, Debt and product market competition: Local market entry, exit, and
expansion decisions of supermarket chains, American Economic Review 85, 415-435.

Kovenock, D., and G. Phillips, 1997, Capital structure and product market behavior: An
examination of plant exit and investment decisions, Review of Financial Studies 10, 767-803.

Campello, M., 2003, Capital Structure and product market interactions: Evidence from business
cycles, Journal of Financial Economics 68, 353-378.

9. Other Factors

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John, K., and T. John, 1993, Top-management compensation and capital structure, Journal of
Finance 48, 949-974.

Zwiebel, J., 1996, Dynamic capital structure under managerial entrenchment, American
Economic Review 86, 1197-1215.

Lambrecht, B., 2001, The impact of debt financing on entry and exit in a duopoly, Review of
Financial Studies 14, 765-804.

Korajczyk, R. A., and A. Levy, 2003, Capital structure choice: Macroeconomic conditions and
financial constraints, Journal of Financial Economics 68, 75-109.

MacKay, P., and G. Phillips, 2005, How does industry affect firm financial structure?, Review of
Financial Studies 18, 1433-1466.

Vijh, A., 2006, Does a parent-subsidiary structure enhance financing flexibility?, Journal of
Finance 61, 1337-1360.

Shivdasani, A., and I. Stefanescu, February 2008, How do pensions affect corporate capital
structure decisions?, SSRN Working paper.

B. Private versus Public Debt

Rajan, R. G., 1992, Insiders and outsiders: The choice between informed and arm’s-length debt,
Journal of Finance 47, 1367-1400.

Houston, J., and C. James, 1996, Bank information monopolies and the mix of private and public
debt claims, Journal of Finance 51, 1863-1889.

Denis, D. J., and V. T. Mihov, 2003, The choice among bank debt, non-bank private debt, and
public debt: Evidence from new corporate borrowings, Journal of Financial Economics 70, 3-28.

Faulkender, M., and Mitchell Petersen, 2006, Does the source of capital affect capital structure?,
Review of Financial Studies 19, 45-79.

Hackbarth, D., C. A. Hennessy, and H. E. Leland, 2007, Can the Trade-off Theory Explain Debt
Structure, Review of Financial Studies 20, 1389-1428.

C. Debt Maturity

Diamond, D. W., 1991, Debt maturity structure and liquidity risk, Quarterly Journal of
Economics 106, 709-737.

Hart, O., and J. Moore, 1995, Debt maturity and seniority: An analysis of the role of hard claims
in constraining management, American Economic Review 85, 567-585.

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Barclay, M. J., and C. W. Smith Jr., 1995, The maturity structure of corporate debt, Journal of
Finance 50, 609-631.

Stohs, M. H., and D. C. Mauer, 1996, The determinants of corporate debt maturity structure,
Journal of Business 69, 279-312.

Guedes, J., and T Opler, 1996, The determinants of the maturity of corporate debt issues, Journal
of Finance 51, 1809-1833.

Johnson, S. A., 2003, Debt maturity and the effects of growth opportunities and liquidity risk on
leverage, Review of Financial Studies 16, 209-236.

Barclay, M. J., L. Marx, and C. W. Smith Jr., 2003, the joint determination of leverage and
maturity, Journal of Corporate Finance 9, 149-167.

Datta, S., M. Iskandar-Datta, and K. Raman, 2005, Managerial stock ownership and the maturity
structure of corporate debt, Journal of Finance 60, 2333-2350.

Benmelech, E., August 2006, Managerial entrenchment and debt maturity: Theory and Evidence,
Working paper.

Benmelech, E., 2007, Asset salability and debt maturity: Evidence from 19th century American
railroads, Forthcoming Review of Financial Studies.

D. Debt Covenants and Characteristics of Debt Contracts

Smith, C. W. Jr., and J. B. Warner, 1979, On financial contracting: An analysis of bond

covenants, Journal of Financial Economics 7, 117-161.

Rajan, R., and A. Winton, 1995, Covenants and collateral as incentives to monitor, Journal of
Finance 50, 1113-1146.

Dichev, I. D., and D. J. Skinner, 2002, Large sample evidence on the debt covenant hypothesis,
Journal of Accounting Research 40, 1091-1123.

Nash, R. C., J. M. Netter, and A. B. Poulsen, 2003, Determinants of contractual relations

between shareholders and bondholders: Investment opportunities and restrictive covenants,
Journal of Corporate Finance 9, 201-232.

Chava, S., P. Kumar, and A. Warga, May 2007, Managerial moral hazard and bond covenants,
SSRN Working paper.

Billett, M. T., T-H. D. King, and D. C. Mauer, 2007, Growth opportunities and the choice of
leverage, debt maturity, and covenants, Journal of Finance 62, 697-730.

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Chava, S., and M. R. Roberts, 2008, How does financing impact investment? The role of debt
covenants, Journal of Finance 63, 2085-2121.

Julio, B., W. Kim, and M. S. Weisbach, July 2008, What determines the structure of corporate
debt issues?, SSRN Working paper.

Garleanu, N., and J. Zwiebel, 2008, Design and renegotiation of debt covenants, Forthcoming
Review of Financial Studies.

Nini, G., D. C. Smith, and A. Sufi, 2008, Creditor control rights and firm investment policy,
Forthcoming Journal of Financial Economics.

E. Financing Frictions and Investment

Fazzari, S., R. G. Hubbard, and B. Petersen, 1988, Financing constraints and corporate
investment, Brookings Papers on Economic Activity 1, 144-195.

Whited, T., 1992, Debt, liquidity constraints, and corporate investment: Evidence from panel
data, Journal of Finance 47, 425-460.

Shleifer, A., and R. Vishny, 1992, Liquidation values and debt capacity: A market equilibrium
approach, Journal of Finance 47, 1343-1365.

Fazzari, S., and B. Petersen, 1993, Working capital and fixed investment: New evidence on
financing constraints, Rand Journal of Economics 24, 328-342.

Kaplan, S. N., and L Zingales, 1997, Do investment-cash flow sensitivities provide useful
measures of financing constraints?, Quarterly Journal of Economics, 707-712.

Lamont, Own, 1997, Cash flow and investment: Evidence from internal capital markets, Journal
of Finance 52, 83-109.

Hubbard, R. G., 1998, Capital market imperfections and investment, Journal of Economic
Literature 36, 193-227.

Cleary, S., 1999, The relationship between firm investment and financial status, Journal of
Finance 54, 673-692.

Fazzari, S., R. G. Hubbard, and B. Petersen, 2000, Investment-cash flow sensitivities are useful:
A comment on Kaplan and Zingales, Quarterly Journal of Economics, 695-705.

Kaplan, S. N., and L. Zingales, 2000, Investment-cash flow sensitivities are not valid measures
of financing constraints, Quarterly Journal of Economics 115, 169-215.

Alti, A., 2003, How sensitive is investment to cash flow when financing is frictionless?, Journal
of Finance 58, 707-722.

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Moyen, N., 2004, Investment-cash flow sensitivities: Constrained versus unconstrained firms,
Journal of Finance 69, 2061-2092.

Almeida, H., M. Campello, and M Weisbach, 2004, The cash flow sensitivity of cash, Journal of
Finance 59, 1777-1804.

Rauh, J., 2006, Investment and financing constraints: Evidence from the funding of corporate
pension plans, Journal of Finance 61, 33-71.

Whited, T. M., 2006, External finance constraints and the intertemporal pattern of intermittent
investment, Journal of Financial Economics 81, 467-502.

Whited, T. M., and G. Wu, 2006, Financial constraints risk, Review of Financial Studies 19. 531-
559.

Almeida, H., and M. Campello, 2007, Financial Constraints, Asset Tangibility, and Corporate
Investment, Review of Financial Studies 20, 1429-1460.

Franzoni, F. A., 2008, Underinvestment vs. overinvestment: Evidence from price reactions to
pension contributions, Forthcoming Journal of Financial Economics.

F. Agency and Executive Compensation

Brander, J. A., and M. Poitevin, 1992, Managerial compensation and the agency costs of debt
finance, Managerial and Decision Economics 13, 55-64.

Murphy, K., 1999, Executive compensation, in O. Ashenfelter and D. Card eds., Handbook of
Labor Economics, Vol. 3b, Ch. 38, 2485-2563.

Carpenter, J. N., 2000, Does option compensation increase managerial risk appetite?, Journal of
Finance 55, 2311-2331.

Ross, S. A., 2004, Compensation, incentives, and the duality of risk aversion and riskiness,
Journal of Finance 59, 207-225.

Daniel, N. D., J. S. Martin, and L. Naveen, 2004, The hidden cost of managerial incentives:
Evidence from the bond and stock markets, SSRN Working paper.

Ortiz-Molina, H., 2006, Top-management incentives and the pricing of corporate public debt,
Journal of Financial and Quantitative Analysis 41, 317-340.

Lewellen, K., 2006, Financing decisions when managers are risk averse, Journal of Financial
Economics 82, 551-590.

10
Coles, J. L., N. D. Daniel, and L. Naveen, 2006, Managerial incentives and risk taking, Journal
of Financial Economics 79, 431-468.

Sundaram, R. K., and D. L. Yermack, 2007, Pay me later: Inside debt and its role in managerial
compensation, Journal of Finance 62, 1551-1588.

Gabaix, X., and A. Landier, 2008, Why has CEO pay increased so much?, Quarterly Journal of
Economics 123, 49-100.

Narayanan, M. P., and H. N. Seyhun, 2008, The dating game: Do managers designate option
grant dates to increase their compensation?, Review of Financial Studies 21, 1907-1945.

Billett, M. T., D. C. Mauer, and Y. Zhang, September 2008, Stockholder and bondholder wealth
effects of CEO incentive grants, Working paper.

G. Corporate Governance

Bertrand, M., and S. Mullainathan, 2003, Enjoying the quiet life? Corporate governance and
managerial preferences, Journal of Political Economy 111, 1043-1075.

Gompers, P. A., J. L. Ishii, and A. Metrick, 2003, Corporate governance and equity prices,
Quarterly Journal of Economics 118, 107-155.

Harvey, C. R., K. Lins, and A. Roper, 2004, The effect of capital structure when expected
agency costs are extreme, Journal of Financial Economics 74, 3-30.

Malmendier, U., and G. Tate, 2005, CEO overconfidence and corporate investment, Journal of
Finance 60, 2661-2700.

Klock, M., S. Mansi, and W. Maxwell, 2005, Does corporate governance matter to bondholders?,
Journal of Financial and Quantitative Analysis 40, 693-719.

Cremers, K. J. M., V. B. Nair, and C. Wei, 2007, Governance Mechanisms and Bond Prices,
Review of Financial Studies 20, 1359-1388.

John, K., L. Litov, and B. Yeung, 2008, Corporate governance and risk-taking, Journal of
Finance 63, 1679-1728.

Gompers, P. A., J. L. Ishii, and A. Metrick, May 2008, Extreme governance: An analysis of dual-
class companies in the United States, SSRN Working paper.

Billett, M. T., and Y. Liu, July 2008, Shareholder-manager alignment and the cost of debt, SSRN
Working paper.

John, K., and L. Litov, September 2008, Managerial entrenchment and capital structure: New
evidence, SSRN Working paper.

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Masulis, R., C. Wang, and F. Xie, 2008, Agency problems at dual-class companies, Forthcoming
Journal of Finance.

H. Hedging and Corporate Risk Management

Stulz, R. M., 1984, Optimal hedging policies, Journal of Financial and Quantitative Analysis 19,
127-140.

Smith, C. W., and R. M. Stulz, 1985, The determinants of firms’ hedging policies, Journal of
Financial and Quantitative Analysis 20, 391-405.

Nance, D. R., C. W. Smith Jr., and C. W. Smithson, 1993, On the determinants of corporate
hedging, Journal of Finance 48, 267-284.

Froot, K., D. Scharfstein, and J. Stein, 1993, Risk management: Coordinating corporate
investment and financing policies, Journal of Finance 48, 1629-1658.

Mian, S. L., 1996, Evidence on corporate hedging policies, Journal of Financial and
Quantitative Analysis 31, 419-439.

Graham, J. R., and C. R. Smith, 1999, Tax incentives to hedge, Journal of Finance 54, 2241-
2262.

Graham, J. R., and D. A. Rogers, 2002, Do firms hedge in response to tax incentives?, Journal of
Finance 57, 815-839.

Guay, W., and S. P. Kothari, 2003, How much do firms hedge with derivatives?, Journal of
Financial Economics 70, 423-461.

Fehle, F., and S. Tsyplakov, 2005, Dynamic risk management: Theory and evidence, Journal of
Financial Economics 78, 3-47.

Mackay, P., and S. B. Moeller, 2007, The value of corporate risk management, Journal of
Finance 62, 1379-1419.

Purnanandam, A., 2008, Financial distress and corporate risk management: Theory and evidence,
Journal of Financial Economics 87, 706-739.

I. Corporate Liquidity

Kim, C-S., D. C. Mauer, and A. E. Sherman, 1998, The determinants of corporate liquidity:
Theory and evidence, Journal of Financial and Quantitative Analysis 33, 335-359.

Myers, S., and R. Rajan, 1998, The paradox of liquidity, Quarterly Journal of Economics 113,
733-771.

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Opler, T., L. Pinkowitz, R. M. Stulz, and R. Williamson, 1999, The determinants and
implications of corporate cash holdings, Journal of Financial Economics 52, 3-46.

Dittmar, A., J. Mahrt-Smith, and H. Servaes, 2003, International corporate governance and
corporate cash holdings, Journal of Financial and Quantitative Analysis 38, 111-133.

Pinkowitz, L., R. M. Stulz, and R. Williamson, 2006, Do firms in countries with poor protection
of investors rights hold more cash?, Journal of Finance 61, 2725-2751.

Faulkender, M., and R. Wang, 2006, Corporate financial policy and the value of cash, Journal of
Finance 61, 1957-1990.

Han, S., and J. Qiu, 2007, Corporate precautionary cash holdings, Journal of Corporate Finance
13, 43-57.

Dittmar, A., and J. Mahrt-Smith, 2007, Corporate governance and the value of cash holdings,
Journal of Financial Economics 83, 599-634.

Foley, C. F., J. Hartzell, S. Titman, and G. J. Twite, 2007, Why do firms hold so much cash? A
tax-based explanation, Journal of Financial Economics 86, 579-607.

Harford, M., S. Mansi, and W. F. Maxwell, 2008, Corporate governance and a firm’s cash
holdings, Journal of Financial Economics 87, 535-555.

Acharya, V. V., S. A. Davydenko, and I. A. Strebulaev, May 2008, Cash holdings and credit risk,
SSRN Working paper.

Bates, T. W., Kahle, K. M., and R. M. Stulz, 2008, Why do U.S. firms hold so much more cash
than they used to?, Forthcoming Journal of Finance.

Riddick, L. A., and T. M. Whited, 2008, The corporate propensity to save, Forthcoming Journal
of Finance.

J. Internal Capital Markets

Stein, J. C., 1997, Internal capital markets and the competition for corporate resources, Journal
of Finance 52, 111-134.

Shin, H-H., and R. M. Stulz, 1998, Are internal capital markets efficient?, Quarterly Journal of
Economics 113, 531-552.

Rajan, R., H. Servaes, and L. Zingales, 2000, The cost of diversity: The diversification discount
and inefficient investment, Journal of Finance 55, 35-80.

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Lamont, O., and C. Polk, 2002, Does diversification destroy value? Evidence from industry
shocks, Journal of Financial Economics 63, 51-77.

Billett, M. T., and D. C. Mauer, 2003, Cross subsidies, external financing constraints, and the
contribution of the internal capital market to firm value, Review of Financial Studies 16, 1167-
1201.

Villalonga, B., 2004, Diversification discount or premium? Evidence from the BITS, Journal of
Finance 59, 479-506.

Almeida, H., and D. Wolfenzon, 2005, The effect of external finance on the allocation of capital,
Journal of Financial Economics 75, 133-164.

Ahn, S., D. Denis, and D. Denis, 2006, Leverage and investment in diversified firms, Journal of
Financial Economics 79 (2), 317-338.

K. Mergers, Acquisitions, and Restructuring

Mitchell, M., H. Mulherin, 1996, The impact of industry shocks on takeover and restructuring
activity, Journal of Financial Economics 41, 193-229.

De, S., M. Fedenia, and A. Triantis, 1996, Effects of competition on bidder returns, Journal of
Corporate Finance 2, 227-259.

Ghosh, A., and P. Jain, 2000, Financial leverage changes associated with corporate mergers,
Journal of Corporate Finance 6, 377-402.

Shleifer, A., and R. Vishny, 2003, Stock market driven acquisitions, Journal of Financial
Economics 70, 295-311.

Billett, M. T., T-H. D. King, and D. C. Mauer, 2004, Bondholder wealth effects in mergers and
acquisitions: New evidence from the 1980s and 1990s, Journal of Finance 59, 107-135.

Moeller, S. B., F. P. Schlingemann, and R. M. Stulz, 2004, Firm size and the gains from
acquisitions, Journal of Financial Economics 73, 201-228.

Schlingemann, F. P., R. M. Stulz, and R. Walkling, 2004, Divestitures and the liquidity of the
market for corporate assets, Journal of Financial Economics 64, 117-144.

Lambrecht, B., 2004, The timing and terms of mergers motivated by economies of scale, Journal
of Financial Economics 72, 41-62.

Moeller, S. B., F. P. Schlingemann, and R. M. Stulz, 2005, Wealth destruction on a massive

scale: A study of acquiring firm returns in the merger wave of the late 1990s, Journal of Finance
60, 757-782.

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Bates, T. W., 2005, Asset sales, investment opportunities, and the use of proceeds, Journal of
Finance 60, 105-135.

Harford, J., 2005, What drives merger waves, Journal of Financial Economics 77, 529-560.

Rhodes-Kropf, M., D Robinson, and S. Vishnawathan, 2005, Valuation waves and merger
activity: The empirical evidence, Journal of Financial Economics 77, 561-6-3.

Dong, M., D. Hirshleifer, S. Richardson, and S. H. Teoh, 2006, Does investor misevaluation
drive the takeover market? Journal of Finance 61, 725-762.

Leland, H., 2007, On purely financial synergies and the optimal scope of the firm: Implications
for mergers, spinoffs, and structured finance, Journal of Finance 62, 765-807.

Lambrecht, B. M., and S. C. Myers, 2007, A theory of takeovers and disinvestment, Journal of
Finance 62, 809-845.

Harford, J., and K. Li, 2007, Decoupling CEO wealth and firm performance: The case of
acquiring CEOs, Journal of Finance 62, 917-949.

Morellec, E., and A. Zhdanov, 2008, Financing and takeovers, Journal of Financial Economics
87, 556-581.

Bargeron, L. L., F. P. Schlingemann, R. M. Stulz, and C. J. Zutter, 2008, Why do private

acquirers pay so little compared to public acquirers?, Journal of Financial Economics 89, 375-
390.

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 Appendix
Key Elements of a Referee Report

Paper Summary: Provide a one or two paragraph summary of what the paper does. This should
have the same structure as the paper’s abstract but should be a little more detailed.

Contribution: What is (are) the (actual or potential) contribution(s) of the paper to knowledge in
the research area? For empirical work, are there any particularly novel aspects of the data used,
the methodologies employed, or the questions posed? Is it clear that this paper extends what is
done in the current literature?

Literature Review: Does the paper adequately document what has been done in the literature
and how it contributes/extends the existing literature? Are there papers that the authors fail to
cite which should be included in the reference list?

Research Design: Does the research design take appropriate account of the existing literature
and is it appropriate for answering the research question(s) posed? Overall, how would you rate
the research methodology used in the paper?

Results: Does the paper have interesting results? Are the paper’s results robust? For empirical
work, do the paper’s results appear sensitive to the sample, time period, or research methods
employed?

Writing: Is the paper well written? Please list any grammatical errors and/or misspelled words.
Your list should be ordered by page #, paragraph (e.g., first full paragraph on the paper), and
specific error or misspelled word.

Overall Assessment: This paper should be (1) accepted without revision, (2) resubmitted with
minor revisions, (3) resubmitted with major revisions, or (4) rejected. Note that for the top
finance journals over 90% of the paper are rejected (i.e., the authors are not given a chance to
respond to the referee report and resubmit their paper for re-review).

Assignment: Write two referee reports that are organized according to the above key elements
(i.e., start with the Paper Summary and finish with the Overall Assessment). In your referee
report, label each section of the report according to the above labels (i.e., Paper Summary, etc).

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UTD boilerplate

Student Conduct & Discipline

The University of Texas System and The University of Texas at Dallas have rules and regulations for the
orderly and efficient conduct of their business. It is the responsibility of each student and each student
organization to be knowledgeable about the rules and regulations which govern student conduct and
activities. General information on student conduct and discipline is contained in the UTD printed
publication, A to Z Guide, which is provided to all registered students each academic year.

The University of Texas at Dallas administers student discipline within the procedures of recognized and
established due process. Procedures are defined and described in the Rules and Regulations, Series 50000,
Board of Regents, The University of Texas System, and in Title V, Rules on Student Services and Activities
of the university’s Handbook of Operating Procedures. Copies of these rules and regulations are available
to students in the Office of the Dean of Students, where staff members are available to assist students in
interpreting the rules and regulations (SU 1.602, 972/883-6391) and online at
http://www.utdallas.edu/judicialaffairs/UTDJudicialAffairs-HOPV.html

A student at the university neither loses the rights nor escapes the responsibilities of citizenship. He or she
is expected to obey federal, state, and local laws as well as the Regents’ Rules, university regulations, and
administrative rules. Students are subject to discipline for violating the standards of conduct whether such
conduct takes place on or off campus, or whether civil or criminal penalties are also imposed for such
conduct.

Academic Integrity
The faculty expects from its students a high level of responsibility and academic honesty. Because the
value of an academic degree depends upon the absolute integrity of the work done by the student for that
degree, it is imperative that a student demonstrate a high standard of individual honor in his or her
scholastic work.

Scholastic Dishonesty, any student who commits an act of scholastic dishonesty is subject to discipline.
Scholastic dishonesty includes but is not limited to cheating, plagiarism, collusion, the submission for
credit of any work or materials that are attributable in whole or in part to another person, taking an
examination for another person, any act designed to give unfair advantage to a student or the attempt to
commit such acts.

Plagiarism, especially from the web, from portions of papers for other classes, and from any other source is
unacceptable and will be dealt with under the university’s policy on plagiarism (see general catalog for
details). This course will use the resources of turnitin.com, which searches the web for possible plagiarism
and is over 90% effective.

Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or
other reproductions of copyrighted materials, including music and software. Copying, displaying,
reproducing, or distributing copyrighted works may infringe the copyright owner’s rights and such
infringement is subject to appropriate disciplinary action as well as criminal penalties provided by federal
law. Usage of such material is only appropriate when that usage constitutes “fair use” under the Copyright
Act. As a UT Dallas student, you are required to follow the institution’s copyright policy (Policy
Memorandum 84-I.3-46). For more information about the fair use exemption, see
http://www.utsystem.edu/ogc/intellectualproperty/copypol2.htm

Email Use

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 The University of Texas at Dallas recognizes the value and efficiency of communication between
faculty/staff and students through electronic mail. At the same time, email raises some issues concerning
security and the identity of each individual in an email exchange. The university encourages all official
student email correspondence be sent only to a student’s U.T. Dallas email address and that faculty and
staff consider email from students official only if it originates from a UTD student account. This allows the
university to maintain a high degree of confidence in the identity of all individual corresponding and the
security of the transmitted information. UTD furnishes each student with a free email account that is to be
used in all communication with university personnel. The Department of Information Resources at U.T.
Dallas provides a method for students to have their U.T. Dallas mail forwarded to other accounts.

Withdrawal from Class

The administration of this institution has set deadlines for withdrawal of any college-level courses. These
dates and times are published in that semester's course catalog. Administration procedures must be
followed. It is the student's responsibility to handle withdrawal requirements from any class. In other
words, I cannot drop or withdraw any student. You must do the proper paperwork to ensure that you will
not receive a final grade of "F" in a course if you choose not to attend the class once you are enrolled.

Student Grievance Procedures

Procedures for student grievances are found in Title V, Rules on Student Services and Activities, of the
university’s Handbook of Operating Procedures.

In attempting to resolve any student grievance regarding grades, evaluations, or other fulfillments of
academic responsibility, it is the obligation of the student first to make a serious effort to resolve the matter
with the instructor, supervisor, administrator, or committee with whom the grievance originates (hereafter
called “the respondent”). Individual faculty members retain primary responsibility for assigning grades and
evaluations. If the matter cannot be resolved at that level, the grievance must be submitted in writing to the
respondent with a copy of the respondent’s School Dean. If the matter is not resolved by the written
response provided by the respondent, the student may submit a written appeal to the School Dean. If the
grievance is not resolved by the School Dean’s decision, the student may make a written appeal to the Dean
of Graduate or Undergraduate Education, and the deal will appoint and convene an Academic Appeals
Panel. The decision of the Academic Appeals Panel is final. The results of the academic appeals process
will be distributed to all involved parties.

Copies of these rules and regulations are available to students in the Office of the Dean of Students, where
staff members are available to assist students in interpreting the rules and regulations.

Incomplete Grade Policy

As per university policy, incomplete grades will be granted only for work unavoidably missed at the
semester’s end and only if 70% of the course work has been completed. An incomplete grade must be
resolved within eight (8) weeks from the first day of the subsequent long semester. If the required work to
complete the course and to remove the incomplete grade is not submitted by the specified deadline, the
incomplete grade is changed automatically to a grade of F.

Disability Services
The goal of Disability Services is to provide students with disabilities educational opportunities equal to
those of their non-disabled peers. Disability Services is located in room 1.610 in the Student Union. Office

18
 hours are Monday and Thursday, 8:30 a.m. to 6:30 p.m.; Tuesday and Wednesday, 8:30 a.m. to 7:30 p.m.;
and Friday, 8:30 a.m. to 5:30 p.m.

The contact information for the Office of Disability Services is:

The University of Texas at Dallas, SU 22
PO Box 830688
Richardson, Texas 75083-0688
(972) 883-2098 (voice or TTY)
disabilityservice@utdallas.edu

If you anticipate issues related to the format or requirements of this course, please meet with the
Coordinator of Disability Services. The Coordinator is available to discuss ways to ensure your full
participation in the course. If you determine that formal, disability-related accommodations are necessary,
it is very important that you be registered with Disability Services to notify them of your eligibility for
reasonable accommodations. Disability Services can then plan how best to coordinate your
accommodations.

It is the student’s responsibility to notify his or her professors of the need for such an accommodation.
Disability Services provides students with letters to present to faculty members to verify that the student
has a disability and needs accommodations. Individuals requiring special accommodation should contact
the professor after class or during office hours.

Religious Holy Days

The University of Texas at Dallas will excuse a student from class or other required activities for the travel
to and observance of a religious holy day for a religion whose places of worship are exempt from property
tax under Section 11.20, Tax Code, Texas Code Annotated.

The student is encouraged to notify the instructor or activity sponsor as soon as possible regarding the
absence, preferably in advance of the assignment. The student, so excused, will be allowed to take the
exam or complete the assignment within a reasonable time after the absence: a period equal to the length of
the absence, up to a maximum of one week. A student who notifies the instructor and completes any missed
exam or assignment may not be penalized for the absence. A student who fails to complete the exam or
assignment within the prescribed period may receive a failing grade for that exam or assignment.

If a student or an instructor disagrees about the nature of the absence [i.e., for the purpose of observing a
religious holy day] or if there is similar disagreement about whether the student has been given a
reasonable time to complete any missed assignments or examinations, either the student or the instructor
may request a ruling from the chief executive officer of the institution, or his or her designee. The chief
executive officer or designee must take into account the legislative intent of TEC 51.911(b), and the student
and instructor will abide by the decision of the chief executive officer or designee.

These descriptions and timelines are subject to change at the discretion of the Professor.

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