Theoretical Corporate Finance (FIN 7340)

Spring 2011

Instructor:
Office Hours:
Office:
Email:
Phone: Nina Baranchuk
By appointment
SOM 3.430
HYPERLINK "mailto:nina.baranchuk@utdallas.edu" nina.baranchuk@utdallas.edu
(972) 883-4771

COURSE DESCRIPTION
The goal of this graduate level course is to provide an introduction into current theoretical
research in corporate finance, covering a broad range of topics. Special attention will be paid
to developing techniques for model writing and analysis. Students will also have a chance to
practice written and oral presentation of their research ideas.

T EXTBOOK
In addition to the articles in the reading list, we will extensively use Jean Tirole, “The Theory
of Corporate Finance”, Princeton university press, 2006.

REQUIREMENTS AND GRADING

Each student is required to select two papers for presentation. If a paper you wish to
present is not from the reading list, you have to discuss your choice with me first. The
deadline for selecting at least one paper for presentation is January 31. By the end of the
semester, each student is required to write a report on the two selected papers. The final
grade will be determined by the two presentations and the written paper (40%), and a final
exam (60%).

T ENTATIVE COURSE OUTLINE

Brief Introduction to Game Theory

Osborne, M. J., and A. Rubinstein, “A course in Game Theory.”

Corporate Governance
chapter 1.
Hermaelin, B. and M. Weisbach. 2003. Boards of Directors as an Endogenously Determined
Institution: A Survey of the Economic Literature. Economic Policy Review Apr:7-26
Murphy, K., and J. Zabojnik. 2004. CEO Pay and Appointments: A Market-Based
explanation for Recent Trends. American Economic Review Papers and Proceedings
94:192--196.
He, Z. 2009. Optimal Executive Compensation when Firm Size Follows Geometric Brownian
Motion. The Review of Financial Studies 22:859-892.
DeMarzo P, and M. Fishman. 2007. Optimal Long-Term Financial Contracting.
20:2079-2128
Aghion, P. and J. Tirole. 2003. Formal and Real Authority in Organizations. Journal of
Political Economy 105:1-29.

Corporate Financing: Agency Costs and Financing Capacity

chapters 2, 3, and 4.
Brunnermeier, M. 2009. Deciphering the Liquidity and Credit Crunch 2007–2008. Journal
of Economic Perspectives 23:77–100
Povel, P. and M. Raith. 2004. Optimal debt with unobservable investments. RAND Journal of
Economics 35:599-616
Pastor, L. and P. Veronesi. 2005. Rational IPO waves. Journal of Finance 60:1713-1757.
Ahlin, C. and R. Townsend. 2003. Selection into and cross credit contracts: theory and field
research. Mimeo, University of Chicago.
Japelli, T., Pagano, M. and M. Bianco. 2005. Courts and Banks: Effects of Judicial
Enforcement on Credit Markets. Journal of Money, Credit, and Banking 37:223-244

Liquidity and Risk Management, Free Cash Flow, and Long-Term Finance
chapter 5.
Gorton, G. and J. Kahn. 2000. The design of bank loan contracts. Review of Financial
Studies 13:331-364.
Hennessy, C. and T. Whited. 2005. Debt Dynamics. The Journal of Finance 60:1129-1165.
Jullien, B. 2000. Participation constraints in adverse selection models. Journal of Economic
Theory 93:1-47.
Chen, H. and G. Manso. Macroeconomic Risk and Debt Overhang. Working Paper, MIT

Corporate Financing Under Asymmetric Information; Adverse Selection

chapter 6.
Hennessy, C., D. Livdan, and B. Miranda. 2009. Repeated signaling and firm dynamics.
Forthcoming. Review of Financial Studies.
Inderst, R. and H. Mueller. 2007. Lender-based theory of collateral. Journal of Financial
Economics 84:826-859.
Allen, F., A. Bernardo, and I. Welch. 2000. A theory of dividends based on tax clientels.
Journal of Finance 55:2499-2536.
M. Sorensen, . 2007. How Smart Is Smart Money? A Two-Sided Matching Model of Venture
Capital. Journal of Finance 62:2725-2762.

Investors of Passage: Entry, Exit, and Speculation

chapter 8.
Gorbenko, A. and A. Malenko. Competition Among Sellers in Securities Auctions.
Forthcoming. American Economic Review.
Diamond, D. and Rajan. 2000. A theory of bank capital. Journal of Finance 55:2431-2465.
Broadie, M., M. Chernov and S. Sundaresan. 2007. Optimal Debt and Equity Values in the
Presence of Chapter 7 and Chapter 11. Journal of Finance 62:1341-1377

Control Rights, Takeovers, and Corporate Governance

chapters 10 and 11.
Segal, I. and M. Whinston. 2002. The Mirrlees approach to mechanism design with
renegotiation. Econometrica 70:1-45
Sharfstein, D. and J. Stein. 2000. The dark side of internal capital markets. Journal of
Finance 55:2537-2564.
Muller, H. and F. Panunzi. 2004. Tender offers and leverage. Quarterly Journal of
Economics 119:1217-1248.

Consumer Liquidity Demand

chapter 12.
He, Z. and W. Xiong. 2010. Dynamic debt runs. Working paper, University of Chicago.
Marquez, R. 2002. Competition, Adverse Selection, and Information Dispersion in the
Banking Industry. Review of Financial Studies 15:901-926.
Allen, F., E. Carletti, and R. Marquez. Credit Market Competition and Capital Regulation.,
forthcoming, Review of Financial Studies.

Credit Rationing
chapter 13.
Burkart, M.nT. Eliingsen. 2004. In-Kind Finance: A Theory of Trade Credit. American
Economic Review June:569-590

Aggregate Liquidity
chapter 15.
Holmstrom, B. and J. Tirole. 1998. Private and public supply of liquidity. Journal of Political
Economy 106:1-40.