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MIT Sloan School of Management 15.441J Advanced Financial Economics II Stewart Myers and Antoinette Schoar Spring 2011
OVERVIEW AND REQUIREMENTS Overview: 15.441J covers the theories of corporate financing and investment decisions and the most important tests of the theories. The course is designed for Ph.D. students interested in corporate finance. It is based mostly on research articles. Those marked with an asterisk (*) will get primary emphasis in class. Make sure to read those articles before the lectures.
The course starts with classic research papers on valuation, including the Modigliani-Miller propositions. The course continues with research on capital structure and financial contracting, agency theories, payout policy, financial intermediation, the market for corporate control and corporate governance. Course Requirements and Grading: Course requirements include (1) regular attendance and reading of (*) articles prior to class, (2) three homework assignments [24% of the grade], (3) a referee report [16% of the grade], an empirical research exercise [20% of the grade] and (4) a take-home final [40% of the grade]. The empirical exercise should be done by groups of two students. The homework problems, referee report and exam should be done individually.
The class meets once a week on Thursdays, from 4 to 7 p.m. in E62-650. The T.A. is Will Mullins (
[email protected] ). Check with him if you need help downloading assigned articles or if you need extra copies of class handouts. Students who are brand-new to finance will find it efficient to browse through a text to get context and institutional details. The text used at MIT is R. A. Brealey, S. C. Myers and F. th Allen, Principles of Corporate Finance, 10 Ed., McGraw-Hill Irwin, Irwin, 2011. For example, example, a student who has not taken 15.416 could read Chapters 20 and 21 to get a start on options and option pricing.
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COURSE SCHEDULE
Feb. 3 [Myers]
Valuation classics, starting with the MM propositions.
Feb. 10 [Myers]
Taxes and the tradeoff theory.
Feb. 17 [Myers]
Asymmetric information and pecking order.
Feb. 24 [Myers]
Agency and free cash flow.
March 3 [Myers]
Capital structure – Recent empirical tests. Homework 1 due in class.
March 10 [Myers]
Payout policy – Theory and tests.
March 17 [Myers]
Takeovers and the market for corporate control (briefly). Contracting theory. Venture capital and private equity.
March 24
Spring vacation
March 31 [Schoar]
Corporate governance and management compensation. Homework 2 due in class.
April 7 [Myers]
Investment theory. Investment-cash flow sensitivity. sensitivit y. Internal capital markets.
April 14 [Schoar]
Development finance. Law and finance.
April 21 [Myers and Schoar]
Behavioral corporate finance. Homework 3 due in class.
April 28
Referee reports due in class. Student presentations.
May 5 [Schoar]
Banking theory and tests.
May 12 [Myers and Schoar]
Financial intermediation and the Crisis of 2007-09. Empirical project due.
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VALUATION CLASSICS, INCLUDING THE MM PROPOSITIONS
*Hirshleifer, J. (1958), On the theory of optimal investment decision, Journal of Political Economy 66: 329-352. Hirshleifer, J. (1965), Investment decision under uncertainty: Choice-theoretic approaches, Quarterly Journal of Economics 79: 509-536. Hirshleifer, J. (1966), Investment decision under uncertainty: Applications of the statepreference approach, Quarterly Journal of Economics 80: 252-277. *Modigliani, F., and M. H. Miller (1958), The cost of capital, corporate finance, and the theory of investment, American Economic Review 48: 261-297. *Miller, M. H., and F. Modigliani (1961), Dividend policy, growth and the valuation of shares, Journal of Business 34: 411-433. *Fama, E. F. (1978), The effects of a firm’s financing and investment decisions on the welfare of its security holders, American Economic Review 68: 272-284. *Sharpe, W. F. (1965), Capital asset prices: A theory of market equilibrium under conditions of risk, Journal of Finance 19: 425-442. Lintner, J. (1965), The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets, Review of Economics and Statistics 47: 13-37. *Black, F., and M. Scholes (1973), The pricing of options and corporate liabilities, Journal of Political Economy 81: 637-654. *Merton, R. C. (1973), The theory of rational option pricing, Bell Journal of Economics and Management Science 4: 141-183. *Cox, J. C., S. A. Ross and M. Rubinstein (1979), Option pricing: A simplified approach, Journal of Financial Economics 7: 229-263. Merton, R. C. (1974), On the pricing of corporate debt: The risk structure of interest rates, Journal of Finance 29: 449-470. Black, F., and J. C. Cox, Valuing corporate securities: Some effects of bond indenture provisions, Journal of Finance 31: 351-368.
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TAXES AND THE TRADEOFF THEORY
Robicheck, A. A., and S. C. Myers (1966), Problems in the theory of optimal capital structure, Journal of Financial and Quantitative Analysis 1: 1-35. Miller, M. H., and F. Modigliani (1966), Some estimates of the cost of capital to the electric utility industry, American Economic Review 56: 333-391. *Miller, M. H. (1977), Debt and taxes, Journal of Finance 32: 261-275. *MacKie-Mason, J. K. (1990), Do taxes affect corporate financing decisions? Journal of Finance 45: 1471-1493. *Graham, J. R. (2000), “How big are the tax benefits of debt?” Journal of Finance 55: 19011941. [Add Core paper and Graham response] Lewellen, J. and K. Lewellen, Taxes and financing decisions, working paper, Tuck School, Dartmouth. *Myers, S. C. (1977), Determinants of corporate borrowing, Journal of Financial Economics 5:147-175. Leland, H. (1994), Corporate debt value, bond covenants and optimal capital structure, Journal of Finance 49: 1213-1252. *Smith, C. W., Jr., and R. Watts (1992), The investment opportunity set and corporate financing, dividend and compensation policies, Journal of Financial Economics 32: 363-292. Smith, C. W., Jr., and J. B. Warner, On financial contracting: An analysis of bond covenants, Journal of Financial Economics 7, 117-161. *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. *Almeida, H., and T. Phillipon (2007), The risk-adjusted cost of financial distress, Journal of Finance 62: 2557-2586.
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Hennessy, C. A., and T. Whited (2005), Debt Dynamics, Journal of Finance 60: 1127-1165.
ASYMMETRIC INFORMATION AND THE PECKING ORDER
*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. Myers, S. C. (1984), “The capital structure puzzle,” Journal of Finance 39: 575-592. *Ross, S. A. (1977), “The determination of financial structure: the incentive-signaling approach,” Bell Journal of Economics 8: 23-40. Korajczyk, R., D. Lucas and R. MacDonald (1991), “The effects of information releases on the pricing and timing of equity issues,” Review of Financial Studies 4:685-708. Dybvig, P. H., and J. Zender (1991), “Capital structure and dividend irrelevance with asymmetric information,” Review of Financial Studies 4: 201-219.
AGENCY AND FREE CASH FLOW
*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. *Jensen, M. C. (1986), Agency costs of free cash flow, corporate finance and takeovers, American Economic Review 76: 323-329. Stulz, R. (1990), Managerial discretion and optimal financing policies, Journal of Financial Economics 26: 3-27. *Zwiebel, J. (1996), Dynamic capital structure under managerial entrenchment, American Economic Review 86: 1197-1215. *Myers, S. C. (2000), Outside equity, Journal of Finance 55: 1005-1037. *Lambrecht, B., and S. C. Myers (2008), Debt and managerial rents in a real options model of the firm, Journal of Financial Economics 89: 209-231. 5
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CAPITAL STRUCTURE – EMPIRICAL TESTS
*Rajan, R., and L. Zingales (1995), What do we know about capital structure? Some evidence from international data, Journal of Finance 50: 1421-1460. Fama, E. F., and K. French (1998), Taxes, financing decisions, and firm value, Journal of Finance 53: 819-843. *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. *Baker, M., and J. Wurgler (2002), Market timing and capital structure, Journal of Finance 57:1-32. Fama, E. F., and K. French (2002), Testing trade-off 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. Welch, Ivo (2004), Capital structure and stock returns, Journal of Political Economy 112: 106131. Fama, E. F., and K. French (2005), Financing decisions: Who issues stock? Journal of Financial Economics 76: 549-582. Leary, M. T., and M. Roberts (2005), “Do firms rebalance their capital structures?” Journal of Finance 60: 2575-2619. Flannery, M. J., and K. P. Rangan (2006), “Partial adjustment towards target capital structures,” Journal of Financial Economics 79: 469-506. Lewellen, K. (2006), “Financing decisions when managers are risk-averse,” Journal of Financial Economics 82: 551-589. Kayhan, Ayla, and Sheridan Titman (2007), “Firms’ 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 6
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the cross-section of corporate capital structure, Journal of Finance 63: 1575-1651. Strebulaev, I. A. (2007), Do tests of capital structure theory mean what they say? Journal of Finance 62: 1747-1787. Chang, X., and S. Dasgupta (2009), Target behavior and financing: How conclusive is the evidence? Journal of Finance 64:1767-1796. DeAngelo, H., L. DeAngelo and R. M. Stulz (2010), Seasoned equity offerings, market timing and the corporate life cycle, Journal of Financial Economics 95: 275-295. Leary, M. T. and M. R. Roberts (2010), The pecking order, debt capacity and information asymmetry, Journal of Financial Economics 95: 332-355. Blouin, J., J. Core and W. Guay (2010), Have the tax benefits of debt been overestimated? Journal of Financial Economics 98, 195-213. Huang, R., and J. Ritter (2009), Testing theories of capital structure and estimating the speed of adjustment, Journal of Financial and Quantitative Analysis 44: 237-271. van Binsbergen, J. H., J. R. Graham and J. Yang (2010), The cost of debt, Journal of Finance 65: 2089-2136. Korteweg, A. (2010), The net benefits to leverage, Journal of Finance 65: 2137-2170. Iliev, P., and I. Welch (2010), Reconciling estimates of the speed of adjustment in leverage ratios, working paper (SSRN). Welch, I. (2010), A critique of recent quantitative and deep-structure modeling in capital structure research and beyond, working paper (SSRN). Graham, J., and M. Leary, A review of empirical capital structure research and directions for the future, draft of article forthcoming in Annual Review of Financial Economics. PAYOUT POLICY
*Lintner, J., (1956), Distribution of incomes of corporations among dividends, retained earnings and taxes, American Economic Review 46: 97-113. *Miller, M. H., and K. Rock (1985), Dividend policy under asymmetric information, Journal of 7
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Finance 40: 1031-1051.
Fama, E. F., and K. French (2001), Disappearing Dividends: Changing firm characteristics or increasing reluctance to pay? Journal of Financial Economics 60: 3-43. Easterbrook, F. (1984), Two agency cost explanations of dividends, American Economic Review 74: 650-659. Fama, E. F., and H. Babiak (1968), Dividend policy: An empirical analysis, Journal of the American Statistical Association 63, 1132-1161. *La Porta, R., F. Lopez-De Silanes, A. Shleifer and R. Vishny (2000), Agency problems and dividend policy around the world, Journal of Finance 55: 1-33. DeAngelo, H., L. DeAngelo and D. J. Skinner (2008), Corporate payout policy, Foundations and Trends in Finance 3, 95-287. *Brav, A., J. R. Graham. C. R. Harvey and R. Michaely (2005), “Payout policy in the 21 century, Journal of Financial Economics 77, 483-528.
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Allen, F., A. Bernardo and I. Welch (2000), A theory of dividends based on tax clienteles, Journal of Finance 55, 2499-2536. Allen, F., and R. Michaely (2003), Payout policy, in G. Constantinedes, M. Harris and R. Stulz, eds., Handbook of the Economics of Finance, Elsevier Science B.V., Amsterdam, 337-430. Baker, M., S. Nagel and J. Wurgler (2007), The effect of dividends on consumption, Brookings Papers on Economic Activity, 277-291. Bhattacharya, S. (1979), Imperfect information, dividend policy and the bird in the hand fallacy, Bell Journal of Economics and Management Science 10, 259-270. John, K., and J. Williams (1985), Dividends, dilution and taxes: A signaling equilibrium, Journal of Finance 49, 1053-1070. Skinner, D. (2008), The ev0olving realtions between earnings, dividends and stock repurchases, Journal of Financial Economics 87: 582-609. Lambrecht, B., and S. Myers (2010), A Lintner model of dividends and managerial rents, MIT working paper, December.
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CORPORATE CONTROL AND TAKEOVERS
Bebchuk, L. A. (1994), Efficient and inefficient sales of corporate control, Quarterly Journal of Economics 109: 957-993. * Grossman, S. J., and O. D. Hart (1980), Takeover bids, the free rider problem and the theory of the corporation, Bell Journal of Economics 11: 42-64. Grossman, S. J., and O. D. Hart (1988), One share one vote and the market for corporate control, Journal of Financial Economics 20: 175-202. Shleifer, A., and R. Vishny (1986), Large shareholders and corporate control, Journal of Political Economy 94: 461-488. Lambrecht, B., and S. C. Myers (2007), A theory of takeovers and disinvestment, Journal of Finance 62: 809-845.
PRIVATE EQUITY AND VENTURE CAPITAL
*Sahlman, W. (1990), The structure and governance of venture capital organizations, Journal of Financial Economics 27: 473-521. Gompers, P., and J. Lerner (2002), The Venture Capital Cycle, MIT Press, Cambridge, MA. *Kaplan, S., and P. Stromberg (2003), Financial contracting theory meets the real world: An empirical analysis of venture capital contracts, Review of Economic Studies, 70:1-35. *Kaplan, S., and A. Schoar (2005), “Private Equity Performance: Returns, Persistence and Capital Flows,” Journal of Finance 60: 1791-1823. Cochrane, John (2005), The risk and return of venture capital, Journal of Financial Economics 75: 3-52. *Gompers, P., J. Lerner and D. Scharfstein (2005), “Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures, Journal of Finance 60: 577-614.
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CORPORATE GOVERNANCE Theories of Managerial Behavior (and How to Curb It)
Acharya, V., S. Myers and R. Rajan (2010), The internal governance of firms, Journal of Finance, forthcoming. Aghion, P., and P. Bolton (1992), An incomplete contracts approach to financial contracting, Review of Economic Studies 77: 388-401. Berle, A., and G. Means (1932), The Modern Corporation and Private Property, World, Inc., New York: Chapters I, V and VI. * Burkart, M., D. Gromb and F. Panunzi (1997), Large shareholders, monitoring and the value of the firm, Quarterly Journal of Economics 113: 693-728. Fama, E. (1978), Agency problems and the theory of the firm, Journal of Political Economy 88: 288-307. Faure-Grimaud, A., and D. Gromb (2004), Public trading and private incentives, Review of Financial Studies 17: 985-1014. Hermalin, B., and Michael Weisbach (1998), Endogenously Chosen Boards of Directors and their Monitoring of the CEO, American Economic Review 88: 96-118. Jensen, M. (1989), The Eclipse of the Public Corporation, Harvard Business Review Sept.-Oct. 1989 (Revised 1997). Jensen, M. (1993), The Modern Industrial Revolution, Exit and the Failure of Internal Control Systems, The Journal of Finance 48: 831-880. * Jensen, Michael C., and William Meckling (1976), Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics, 3:305-360. Hart, O. D. (1995), Firms, Contracts and Financial Structure, Oxford University Press. Chapters 1, 2, 3 and 5. Holmstrom, B., and J. Tirole (1993), Market liquidity and performance monitoring, Journal of Political Economy 101: 678-709.
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Myers, S.C. (2000), Outside equity, Journal of Finance 55, 1003-1037. Scharfstein, D., and J. Stein (1990), Herd behavior and investment, American Economic Review 80: 465-479 *Shleifer, A., and R.W. Vishny (1989), Management entrenchment: The case of managerspecific projects, Journal of Financial Economics 25: 123-139. * Shleifer, A., and R. W. Vishny (1997), A survey of corporate governance, Journal of Finance 52: 737-783. * Stein, J. (1989), Efficient capital markets, inefficient firms: A model of myopic behavior, Quarterly Journal of Economics 104: 655-669. Zwiebel, J. (1996), Dynamic capital structure under managerial entrenchment, American Economic Review 86: 1197-1215. Zwiebel, J. (1995), Corporate conservatism, relative behavior, and executive compensation, Journal of Political Economy 103: 1-25. Internal Governance: Empirics
(*) Bertrand, M., and S. Mullainathan (2001), Are CEOs rewarded for luck? The ones without principals are, Quarterly Journal of Economics 116: 901-932. Gibbons, R., and K. J. Murphy (1990), Relative performance evaluation for chief executive officers, Industrial and Labor Relations Review 43: 30-51. Gompers, P., J. Ishii and A. Metrick, (2003), Corporate governance and equity prices, Quarterly Journal of Economics 118: 107-155. Hall, B. J., and J. B. Liebman (1998), Are CEOs really paid like bureaucrats? Quarterly Journal of Economics 111: 653-691. Holderness, C., R. Kroszner, and D. Sheehan, 2000, Were the good old days that good? Changes in managerial stock ownership since the great depression, Journal of Finance 54: 435-469. Jensen, M. C., and K. J. Murphy (1990), Performance pay and top-management incentives, Journal of Political Economy 98: 225-264.
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Morck, R., A. Shleifer, and R. W. Vishny (1989), Alternative mechanisms for corporate control, American Economic Review 44: 842-852. (*) Morck, R., A. Shleifer, and R. W. Vishny (1988), Management ownership and market valuation: An empirical analysis, Journal of Financial Economics 20: 293-315. (*) Murphy, Kevin J. (1999), Executive compensation, in Handbook of Labor Economics, O. Ashenfelter and D. Card, eds., v. 3. Yermack, D. (1997), Good Timing: CEO stock option awards and company news announcements, Journal of Finance 52: 449-476. Weisbach, M. S. (1988), Outside directors and CEO turnover, Journal of Financial Economics 20: 431-460. External Governance: Empirics
* Andrade, G., M. Mitchell and E. Stafford (2001), New Evidence and Perspectives on Mergers, Journal of Economic Perspectives 15: 103-120. * Bertrand, M., and S. Mullainathan (2003), Enjoying the quiet life? Corporate governance and managerial preferences, Journal of Political Economy 111: 1043-1075. Dyck, A., and L. Zingales (2004), Private benefits of control: An international comparison, Journal of Finance 59: 537-600. * Jensen, M. C. (1986), Agency Costs of Free Cash Flow, Corporate Finance and Takeovers, American Economic Review 76: 323-329. Jensen, M. C., and R. S. Ruback (1983), The market for corporate control: The scientific evidence, Journal of Financial Economics 24: 137-154. Kaplan, S. (1989), The effects of management buyouts on operating performance and value, Journal of Financial Economics 24: 581-618. Mitchell, M., and H. Mulherin (1996), The impact of industry shocks on takeover and restructuring activity, Journal of Financial Economics 41: 193-229. Mitchell, M. and K. Lehn (1990), Do bad bidders become good targets?, Journal of Political Economy 98: 372-398.
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Morck, R., A. Shleifer and R. Vishny (1990), Do Managerial Objectives Drive Bad Acquisitions?, Journal of Finance 45: 31-48. Zingales, L. (1995), What determines the value of corporate votes?, Quarterly Journal of Economics 110: 1047-1073.
BEHAVIORAL CORPORATE FINANCE
* Baker, M., and J. Wurgler (2002), Market timing and capital structure, Journal of Finance 57: 1-32. Baker, M., and J. C. Stein (2004), Market liquidity as a sentiment indicator, Journal of Financial Markets 7: 271-299. Baker, M., J. Wurgler and J. C. Stein (2003), When does the market matter? Stock prices and the investment of equity-dependent firms, Quarterly Journal of Economics 118: 969-1005. Bayless, M., and S. Chaplinsky (1996), Is there a window of opportunity for seasoned equity issuance? Journal of Finance 51: 253-278. * Bertrand, Marianne and Antoinette Schoar (2003), Managing with style: The effect of managers on firm policies, Quarterly Journal of Economics 118: 1169-1208. Heaton, J.B. (1998), Managerial optimism and corporate finance, Financial Management 31: 3345. Jenter, D. (2005), Market timing and managerial portfolio decisions, Journal of Finance 60: 1903-1949. Loughran, T., and J. Ritter (1995), The new issues puzzle, Journal of Finance 50: 23-51. Malmendier, U., and G. Tate (2004), CEO overconfidence and corporate investment, Journal of Finance 60: 2661-2700. Roll, R. (1986), The hubris hypothesis of corporate takeovers, Journal of Business 59: 197-216. Shleifer, A., and R.Vishny (2003), Stock market driven acquisitions, Journal of Financial Economics 70: 295-311.
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Stein, J. C. (1996), Rational capital budgeting in an irrational world, Journal of Business 69: 429-455. Weisbach, M. (1995), CEO turnover and the firm's investment decisions, Journal of Financial Economics 37: 159-188.
FINANCIAL INTERMEDIATION AND THE CRISIS OF ‘08 Theory of financial intermediation
* Diamond, D. W. (1984), Financial intermediation and delegated monitoring, Review of Economic Studies 51: 393-414. * Diamond, D.W., and P. Dybvig (1983), Bank runs, deposit insurance and liquidity, Journal of Political Economy 91: 401-419. Gorton, G., and G. Pennacchi (1990), Financial intermediaries and liquidity creation,” Journal of Finance 45: 49-71. Holmstrom, B., and J. Tirole (1997), “Financial intermediation, loanable funds and the real sector, Quarterly Journal of Economics 112: 663-691. Debt Structure – Theory
Diamond, D. (1991), “Monitoring and reputation: The choice between bank loans and directly placed debt,” Journal of Political Economy 99: 689-721. Diamond, D. (1993), “Seniority and maturity structure of debt contracts, Journal of Financial Economics 33: 341-368. Rajan, R. (1992), Insiders and outsiders: The choice between informed and arm’s-length debt, Journal of Finance 47: 1367-1400. Myers, S. C., and R. Rajan (1998), The paradox of liquidity, Quarterly Journal of Economics 113: 733-771. Rauh, J. D., and A. Sufi (2010), Capital structure and debt structure, Review of Financial Studies 23: 4242-4280. Relationship Banking 14
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Hoshi, T., A. Kashyap and D. S. Scharfstein (1990), The role of banks in reducing the costs of financial distress in Japan, Journal of Financial Economics 27: 67-88. * Petersen, M., and R. Rajan (1994), The benefits of lending relationships: Evidence from small business data, Journal of Finance 49: 3-37. •Petersen, M., and R. Rajan (1995), The effect of credit market competition on lending relationships, Quarterly Journal of Economics 110: 407-443. Banks as Liquidity Providers
Kashyap, A., R. Rajan and J. C. Stein (2002), Banks as liquidity providers: An explanation for the co-existence of lending and deposit-taking,” Journal of Finance 57: 33-73. Kashyap, A., and J. C. Stein (2000), What do a million observations on banks say about the transmission of monetary policy?, American Economic Review 90: 407-428. CORPORATE FINANCE IN DEVELOPING ECONOMIES
Acemglu, D., S. Johnson and J. Robinson (2001), The colonial origins of comparative development: An empirical investigation, American Economic Review 91: 1369-1401. Bergman, N., and D. Nicolaievsky (2005), Investor protection and the Coasian view, Journal of Financial Economics, 84: 738-771. Djankov, S., R. La Porta, F. Lopez-de-Silanes and A. Shleifer (2003), Courts, Quarterly Journal of Economics 118: 453-517. Franks, J., C. Mayer and S. Rossi (2004), Ownership: Evolution and regulation, LBS Finance Working Paper N°. 09/2003. King, R., and R. Levine (1993), Finance and growth: Schumpeter might be right, Quarterly Journal of Economics 43: 681-737. * La Porta, R., F. Lopez de Silanes, A. Shleifer and R. Vishny (1996), Law and finance, Journal of Political Economy 106: 1113-1155. La Porta, R., F. Lopez de Silanes, A. Shleifer and R. Vishny (1997), Legal determinants of external finance, Journal of Finance 52: 1131-1150.
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La Porta, R., F. Lopez de Silanes and A. Shleifer and R. Vishny (2000), Investor protection and corporate valuation, Journal of Financial Economics 58: 3-27. La Porta, R., F. Lopez de Silanes and A. Shleifer (1999), Corporate ownership around the World, Journal of Finance 54: 471-517. Lerner, J., and A. Schoar (2005), Does legal enforcement affect financial transactions? The contractual channel in private equity, Quarterly Journal of Economics 120: 223-246. Rajan, R., and L. Zingales (1998), Financial dependence and growth, American Economic Review 88: 559-586. Rajan, R., and L. Zingales (2003), The great reversals: The politics of financial development in the twentieth century, Journal of Financial Economics 69: 5-50.
FINANCIAL MARKETS AND CAPITAL INVESTMENT
*Graham, J. R., and C. R. Harvey (2000), “The theory and practice of corporate finance: evidence from the field,” Journal of Financial Economics 60: 187 – 245. *Fama, E. F. (1996), Discounting under uncertainty, Journal of Business 69: 415-428. *Brennan, M. J., and E. S. Schwartz (1985), Evaluating natural resource investments, Journal of Business 58: 135-157. Berger, P. and E. Ofek, 1995, Diversification’s effect on firm value, Journal of Financial Economics 37: 39-66. Chevalier, J. A. (2000), What do we know about cross-subsidization? Evidence from the investment policies of merging firms, Advances in economic analysis & policy 4: 1-27. Gertner, R., E. Powers and D. S. Scharfstein (2000), Learning about internal capital markets from corporate spinoffs, Journal of Finance 57: 2479-2506. * Lamont, O. (1997), Cash flow and investment: Evidence from internal capital markets, Journal of Finance, 52:83-109. Lang, L. H.P., and R. M. Stulz, 1994, Tobin’s q, corporate diversification, and firm performance, Journal of Political Economy 102: 1248-1280. 16
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Rajan, R., H. Servaes and L. Zingales (2000), The cost of diversity: The diversification discount and inefficient investment, Journal of Finance 55: 35-80. Scharfstein, D. S. (1998), The dark side of internal capital markets II: Evidence from diversified conglomerates, NBER working paper 6352. Scharfstein, D. S., and J. C. Stein (2000), The dark side of internal capital markets: Divisional rent-seeking and inefficient investment, Journal of Finance 55: 2537-2564. Schoar, A. (2002), The effect of diversification on firm productivity, Journal of Finance 62: 2379-2403. Stein, J. C. (1997), Internal capital markets and the competition for corporate resources, Journal of Finance 52: 111-133. Stein, J. C. (2003), Agency, information and corporate investment, in Handbook of the Economics of Finance, G. Constantinides, M. Harris and R. Stulz, eds. Amsterdam: NorthHolland.
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MIT SLOAN PROFESSIONAL STANDARDS
Maintenance of a productive living and learning environment requires that all members of the MIT Sloan community exercise due respect for the basic rights of one another. The Values Statement which follows accordingly reflects this important principle.
Values Statement To foster an appropriate living and learning culture, MIT Sloan students, faculty and staff: • Value differences and respect each other’s abilities • Promote effective teamwork • Expect academic honesty • Support each other’s successes • Help each other attain personal and professional objectives • Hold each other accountable for decisions made and actions taken MIT Sloan’s Professional Standards provide a guideline for professional behavior by students, faculty, and staff inside and outside of the classroom, and directly reflect the Values Statement above. Fundamental to the principle of independent learning and professional growth is the requirement of honesty and integrity in the conduct of one’s academic and non-academic life. The MIT Sloan School is committed to creating an environment in which every individual can work and study in a culture of mutual respect. When making individual decisions we must keep in mind the interests of the many other stakeholders.
ACADEMIC HONESTY As a member of the MIT Sloan academic community, the highest standards of academic behavior are expected of you. It is your responsibility to make yourself aware of the standards and adhere to them. These standards are discussed below, specifically regarding plagiarism, individual work, and team work. 18
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This discussion of academic honesty is not exhaustive, and there may be areas that remain unclear to you. If you are unsure whether some particular course of action is proper, it is your responsibility to consult with your professor and/or teaching assistant for c larification.
When students are found to have violated academic standards, disciplinary action will result. Possible consequences include grade reduction, an F grade, a transcript notation, delay of graduation, or expulsion from MIT Sloan.
Plagiarism Plagiarism occurs when you use another's intellectual property (words or ideas) and do not acknowledge that you have done so. Plagiarism is a very serious offense. If it is found that you have plagiarized -- deliberately or inadvertently -- you will face serious consequences, as indicated above. The best way to avoid plagiarism is to cite your sources - both within the body of your assignment and in a bibliography of sources you used at the end of your document.
Internet Research Materials gathered through research via the Internet must be cited in the same manner as more traditionally published material. Lack of such citation constitutes plagiarism.
These definitions were drawn from the MIT Libraries website. more information please visit: http://libraries.mit.edu/tutorials/general/plagiarism.html
For
Individual Assignments Many assignments in the MIT Sloan coursework are expected to be done individually. The information below outlines what is meant by “individual” work. These rules should be observed unless otherwise defined by the instructor. If students are unsure whether some particular form of interaction is proper, the instructor and/or teaching assistant should be consulted. When you are asked to do individual work, you are expected to adhere to the following standards:
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Do not copy all or part of another student’s work (with or without “permission”).
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Do not allow another student to copy your work. Do not ask another person to write all or part of an assignment for you. Do not work together with another student in order to answer a question, or solve a problem, or write a computer program jointly. Do not consult or submit work (in whole or in part) that has been completed by other students in this or previous years for the same or substantially the same assignment. Do not use print or internet materials directly related to a case/problem set unless explicitly authorized by the instructor. Do not use print or internet materials without explicit quotation and/or citation. Do not submit the same, or similar, piece of work for two or more subjects without the explicit approval of the two or more instructors involved.
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Please note that many classes will require a combination of team work and individual work. Be sure that y ou follow all the guidelines for individual work when a faculty member identifies an assignment as an individual one.
Team Assignments When you are asked to work in teams , there is a broad spectrum of faculty expectations. Three general types of appropriate collaboration on team assignments are described below. The instructor will indicate in the syllabus what his/her expectations are. If there is any uncertainty, it is the student’s responsibility to clarify with the professor or TA the type of team work that is expected. Type 1 collaboration: the professor states that collaboration is allowed, but the final product must be individual. An example of this might be a problem set. •
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You are allowed to discuss the assignment with other team members and work through the problems together. What you turn in, however, must be your own product, written in your own handwriting, or in a computer file of which you are the sole author. Copying another’s work or electronic file is not acceptable.
Type 2 collaboration: the professor states that c ollaboration is encouraged but that each person's contribution to the deliverable does not have to be substantial (taking a "divide and conquer" approach). An example of this might be a brief progress report.
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Each team member is encouraged to contribute substantially to the team assignment, however, the team may choose to assign one or more team members to prepare and submit the deliverable on behalf of the team. Regardless of how work is shared or responsibilities are divided among individual team members, each member of the team will be held accountable for the academic integrity of the entire assignment. If, for example, one member of the team submits plagiarized work on behalf of the team, the entire team will be subject to sanctions as appropriate. The team may not c ollaborate with other students outside of the team unless the professor explicitly permits such collaboration.
Type 3 collaboration: the professor states that c ollaboration is expected and that each team member must contribute substantially to the deliverable. An example of this might be the FYC or the OP project. •
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Each team member must make a substantial contribution to the assignment. It is not, for example, acceptable to divide the assignments amongst the team members (e.g., part of the team does the FYC and the other part does another project), though the team may divide the work of any one assignment to complete it as they deem appropriate. The team may not collaborate with other students outside of the team unless the professor explicitly permits such collaboration.
To repeat, if there is any question about the rules for a particular assignment the student should check with the faculty member.
PERSONAL CONDUCT
MIT Sloan’s Professional Standards provide a guideline for professional behavior by students, and faculty inside the classroom. The MIT Sloan School is committed to creating an environment in which every individual can work and study in a culture of mutual respect. When making individual decisions we must keep in mind the interests of the many other stakeholders. Consistent with the general goal of mutual respect, faculty, students, and staff are reminded to demonstrate: • On-time arrival to classes and presentations, with uninterrupted attendance for the duration. For example, those who arrive on time to an event or class and stay until it ends show courtesy to both the speaker and the audience, and avoid disrupting the session for others. •
On-time initiation and termination of classes and presentations. For example, there is a 10-minute transition time period
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allocated between MIT Sloan class sessions. A class session or any other public meeting is expected to formally end 5 minutes before its scheduled ending time, and the following class session or meeting is expected to begin 5 minutes after its scheduled starting time. Students and faculty who observe this practice allow classrooms to be cleared in a reasonable way, facilitate traffic flow between rooms, and minimize disruptions to MIT Sloan’s tightly-scheduled facilities.
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Maintenance of a professional atmosphere.
This includes, but
is not limited to: ⇒
Using respectful comments and humor Be aware that once you matriculate at MIT Sloan, you’ll be representing the MIT Sloan School and MIT for the rest of your life. Make a positive impact as an individual and School representative by extending respect to your MIT Sloan community colleagues and all other guests and strangers. For example, minimize misunderstanding by communicating thoughtfully and using humor carefully in a context of mutual respect with new acquaintances and strangers—and in the context of your preexisting relationships with your friends. Those who use the ‘Golden Rule’ (e.g., treating others as they would like to be treated themselves) as a starting point in their interactions with others will always have solid friendships and business relationships at hand.
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Utilizing computers and technology suitably (e.g., silencing wireless devices, no web-browsing or emailing) For example, those who switch off their cell phones before the start of class respect our academic environment by allowing uninterrupted learning to proceed. Similarly, those who turn off laptop computers before a class or meeting avoid ‘multitasking’ activities such as internet browsing and emailing that are unwelcome and distracting to their neighbors. Unless specifically permitted by a faculty member, an event organizer, or a presenter, laptops should remain closed during MIT Sloan class sessions, presentations, and meetings.
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Refraining from distracting or disrespectful activities (e.g., avoiding side conversations and games) As with the improper use of cell phones and laptops, side conversations and game playing during meetings, events, and classes are distracting and discourteous to colleagues, guests, and presenters, reflect poorly on the MIT Sloan School—and should be avoided.
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Courtesy towards all guests, hosts and participants in the classroom. Community members are expected to maintain decorum in interactions with members and guests of the MIT Sloan community. Such behavior should: 1)—reflect MIT Sloan Professional Standards, and; 2)—be consistent with the North American business practices. Appropriate, courteous behavior enhances MIT Sloan’s reputation and encourages others to participate in our activities, hire our students, and contribute to our School. In MIT Sloan’s environment, students are expected to observe the proper dress, decorum, and etiquette that is appropriate to MIT Sloan Professional Standards and North American business customs for each setting they are in. For example, unless otherwise specified, business casual attire is the norm for the classroom.
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Observance of the most conservative standards when one is unsure about which norms apply. For example, if you are unsure whether a faculty member allows the use of laptop computers in class, assume that laptops are not permitted unless/until you learn otherwise. And if you are unsure if your comments will be offensive to someone, particularly from another culture, refrain from sharing them.
Upholding these expectations and the standards upon which they are based is a shared right and responsibility for all faculty, students and staff at the MIT Sloan School. As a learning and professional community, we seek and deserve no less.
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Please visit Professional Standards on SloanPoint at https://sloanpoint.mit.edu/administration/profstandards/Pages/default.aspx
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See other side for additional resources.
Resources Personal Accountability Citing and Using Sources http://libraries.mit.edu/tutorials/general/cite.html Academic Integrity at MIT http://web.mit.edu/academicintegrity/ MIT Course Bulletin: Institute Regulations and Procedures http://web.mit.edu/catalogue/overv.chap5-inst.shtml Graduate Policies and Procedures http://web.mit.edu/odge/gpp/ Expectations of all Students: http://web.mit.edu/uaap/learning/modules/acadintegrity/
Respect Active Bystander Behavior http://web.mit.edu/community/participate/active.html Harassment at MIT http://web.mit.edu/policies/9.5.html MIT Ombuds Office, Office of the President http://web.mit.edu/ombud/index.html Committee on Discipline http://web.mit.edu/committees/cod/ Mind + Hand + Book http://web.mit.edu/mindandhandbook/policy/resources.html
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The Center for Health Promotion and Wellness http://web.mit.edu/medical/a-center.html Mental Health at MIT Medical http://web.mit.edu/medical/services/s-mentalhealth.html The MIT Center for Work, Family, and Personal Life http://hrweb.mit.edu/worklife/index.html Office of the Dean for Graduate Education http://web.mit.edu/odge/ Graduate Student Council http://gsc.mit.edu/
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