Reading list on Theories of Capital Structure

I. MM Propositions and Trade-off Theory ☆ 1. RWJ Chapter 15 and 16 (or BM Chapter 18) ☆ 2. Miller, Merton, 1988, “The Modigliani-Miller Propositions after Thirty Years,” Journal of Economic Perspectives, 2, 99-120. ☆ 3. Berens, James L., and Charles J. Cuny, 1995, “The Capital Structure Puzzle Revisited,” Review of Financial Studies, 8, 1185-1208. 4. DeAngelo, Harry and Ronald Masulis, 1980, “Optimal Capital Structure Under Corporate and Personal Taxation,” Journal of Financial Economics, 8, 3-30. 5. Fama, Eugene F., and Kenneth R. French, 1998, “Taxes, Financing Decisions, and Firm Value,” Journal of Finance, 53, 819-843. △ 6. Graham, John R., 2000, “How Big Are the Tax Benefits of Debt,” Journal of Finance, 55, 1901-1941. II. Capital Structure: Information Asymmetry ☆ 1. Leland, Hayne, and David Pyle, 1977, “Information Asymmetries, Financial Structure, and Financial Intermediation,” Journal of Finance, 32, 371-387. ☆ 2. Myers, Stewart C., and Nicholas Majluf, 1984, “Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have,” Journal of Financial Economics, 13, 187-222. ☆ 3. Myers, Stewart C., 1984, “The Capital Structure Puzzle,” Journal of Finance, 39, 575- 592. ★ 4. Shyam-Sunder, Lakshmi, and Stewart C. Myers, 1999, “Testing Static Tradeoff against Pecking Order Models of Capital Structure,” Journal of Financial Economics, 51, 219-244. Chirinko, Robert S., and Anuja R. Singha, 2000, ” Testing static tradeoff against pecking order models of capital structure: A critical comment,” Journal of Financial Economics, 58, 417-425. Corporate Finance Seminar I National Taiwan University Fall, 2001 Konan Chan 3 5. Akerlof, George, 1970, “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of Economics, 84, 488-500. 6. Ross, Stephen, 1977, “The Determinants of Financial Structure: The Incentive Signalling Approach,” Bell Journal of Economics, 8, 23-40. III. Capital Structure: Agency Costs ☆ 1. Jensen, Michael, 1986, “Agency Costs of Free Cash Flow, Corporate Finance, Takeovers,” American Economic Review, 76, 323-29. ☆ 2. Harris, Milton, and Arthur Raviv, 1991, “The Theory of Capital Structure,” Journal of Finance, 46, 297-355. ★ 3. Rajan, Raghuram, and Luigi Zingales, 1995, “What Do We Know about Capital Structure? Some Evidence from International Data,” Journal of Finance, 50, 1421- 1460. △ 4. Parrino, Robert, and Michael S. Weisbach, 1999, “Measuring Investment Distortions Arising from Stockholder-Bondholder Conflicts,” Journal of Financial Economics, 53, 3-42. 5. Jensen, Michael, and William Meckling, 1976, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” Journal of Financial Economics, 3, 305-360. 6. Myers, Stewart C., 1977, “The Determinants of Corporate Borrowing,” Journal of Financial Economics, 5, 146-175. 7. Myers, Stewart C., 1993, “Still Searching for Optimal Capital Structure,” Journal of Applied Corporate Finance, 6, 4-14. IV. Interaction between Product Markets and Capital Structure ☆ 1. Brander, James A., and Tracy R. Lewis, 1986, “Oligopoly and Financial Structure,” American Economic Review, 76, 956-970. ☆ 2. Maksimovic, Vojislav, and Sheridan Titman, 1991, “Financial Policy and Reputation for Product Quality,” Review of Financial Studies, 4, 175-200. ★ 3. Chevalier, Judith, 1995, “Do LBO Supermarkets Charge More? An Empirical Analysis of the Effects of LBOs on Supermarket Pricing,” Journal of Finance, 50, 1095-1112. 4. Titman, Sheridan, 1984, “The Effect of Capital Structure on a Firm’s Liquidation Decision,” Journal of Financial Economics, 13, 137-152. 5. Phillips, Gordon M., 1995, “Increased Debt and Product Market Competition: An Empirical Analysis,” Journal of Financial Economics, 37, 189-238. V. Payout Policy Corporate Finance Seminar I National Taiwan University Fall, 2001 Konan Chan 4 1. RWJ Chapter 18 (or BM Chapter 16) ☆ 2. Miller, Merton, and Kevin Rock, 1985, “Dividend Policy under Asymmetric Information,” Journal of Finance, 40, 1031-1052. ☆ 3. Bagwell, Laurie Simon, and John B. Shoven, 1989, “Cash Distributions to Shareholders,” Journal of Economics Perspectives, 3, 129-140. ★ 4. Ikenberry, David, Josef Lakonishok, and Theo Vermaelen 1995, “Market Underreaction to Open Market Repurchases,” Journal of Financial Economics, 39, 181-208. △ 5. Fama, Eugene F., and Kenneth R. French, 2001, “Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay,” Journal of Financial Economics, 60, 3-43. 6. Stephens, Clifford P., and Michael S. Weisbach, 1998, “Actual Share Reacquisitions in Open-Market Repurchase Programs,” Journal of Finance, 53, 313-333. 7. Jagannathan, Murali, Clifford P. Stephens, and Michael S. Weisbach, 2000, “Financial Flexibility and the Choice between Dividends and Stock Repurchases,” Journal of Financial Economics, 57, 355-384. 8. Chan, Konan, David Ikenberry, and Inmoo Lee, 2001, “Do Firms Knowingly Repurchase Stock for Good Reason?” working paper. VI. Initial Public Offerings 1. RWJ Chapter 19 (or BM Chapter 15) ☆ 2. Ritter, Jay R., 1998, “Initial Public Offerings,” Contemporary Finance Digest, 2, 5-30. ☆ 3. Benveniste, Lawrence M, and Paul A. Spindt, 1989, “How Investment Bankers Determine the Offer Price and Allocation of New Issues,” Journal of Financial Economics, 24, 343-361. ★ 4. Aggarwal, Reena, 2000, “Stabilization Activities by Underwriters after Initial Public Offerings,” Journal of Finance, 55, 1075-1103. △ 5. Chen, Hsuan-Chi, and Jay R. Ritter, 2000, “The Seven Percent Solution,” Journal of Finance, 55, 1105-1131. 6. Teoh, Siew Hong, Ivo Welch, and T.J. Wong, 1998, “Earnings Management and the Long-Run Market Performance of Initial Public Offerings,” Journal of Finance, 53, 1935-1974. 7. Rock, Kevin, 1986, “Why New Issues Are Underpriced,” Journal of Financial Economics, 15, 187-212. Corporate Finance Seminar I National Taiwan University Fall, 2001 Konan Chan 5 8. Ritter, Jay R., 1991, “The Long-Run Performance of Initial Public Offerings,” Journal of Finance, 46, 3-27. 9. Brav, Alon, and Paul A. Gompers, 1997, “Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-backed Companies,” Journal of Finance, 52, 1791-1822. 10. Krigman, Laurie, Wayne H. Shaw and Kent L. Womack, 2001, “Why Do Firms Switch Underwriters?” Journal of Financial Economics, 60, 245-284. △ 11. Field, Laura C., and Gordon Hanka, 2001, “The Expiration of IPO Share Lockups,” Journal of Finance, 56, 471-500. VII. Security Offerings ☆ 1. Ritter, Jay R., 2002, “Investment Banking and Securities Issuance,” Chapter 9 in Constantinides, Milton and Stulz ed.: Handbook of the Economics of Finance ☆ 2. Stein, Jeremy C., 1989, “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior,” Quarterly Journal of Economics, 15, 655-669. ☆ 3. Lucas, Deborah J., and Robert McDonald, 1990, “Equity Issues and Stock Price Dynamics,” Journal of Finance, 45, 1019-1043. ★ 4. Alon Brav, Christopher Geczy, and Paul A. Gompers, 2000, “Is the Abnormal Return Following Equity Issuances Anomalous? ” Journal of Financial Economics, 56, 209- 249. 5. Loughran, Tim, and Jay R. Ritter, 1995, “The New Issues Puzzle,” Journal of Finance, 50, 23-51. 6. Stein, Jeremy, 1992, “Convertible Bonds as Backdoor Equity Financing,” Journal of Financial Economics, 32, 3-21. 7. Lee, Inmoo, 1997, “Do Managers Knowingly Sell Overvalued Equity,” Journal of Finance, 42, 1439-1466. 8. Teoh, Siew Hong, Ivo Welch, and T.J. Wong, 1998, “Earnings Management and the Underperformance of Seasoned Equity Offerings,” Journal of Financial Economics, 50, 63-99. VIII. Corporate Control and Corporate Governance 1. RWJ Chapter 30 (or BM Chapter 33) ☆ 2. Shleifer, Andrei, and Robert Vishny, 1986, “Large Shareholders and Corporate Control,” Journal of Political Economy, 94, 461-488. ☆ 3. Shleifer, Andrei, and Robert Vishny, 1997, “A Survey of Corporate Governance,” Journal of Finance, 52, 737-783. Corporate Finance Seminar I National Taiwan University Fall, 2001 Konan Chan 6 ★ 4. Loughran, Tim, and Anand M. Vijh, 1997, “Do Long-Term Shareholders Benefit From Corporate Acquisitions,” Journal of Finance, 52, 1765-1790. 5. Grossman, Sanford, and Oliver D. Hart, 1980, “Takeover Bids, the Free Rider Problem, and the Theory of the Corporation,” Bell Journal of Economics, 11, 42-64. 6. Jensen, Michael C., and Richard S. Ruback, 1983, “The Market for Corporate Control: The Scientific Evidence,” Journal of Financial Economics, 11, 5-50. 7. Jensen, Michael C., and Kevin J. Murphy, 1990, “Performance Pay and Top Management Incentives: Historical Evidence,” Journal of Political Economy, 98, 225-264. 8. Weisbach, Michael, 1988, “Outside Directors and CEO Turnover,” Journal of Financial Economics, 20, 431-460. △ 9. Weisbach, Michael, 1995, “CEO Turnover and the Firm’s Investment Decisions,” Journal of Financial Economics, 37, 159-188. 10. Morck, Randall, Andrei Shleifer, and Robert Vishny, 1988, “Management Ownership and Market Valuation: An Empirical Analysis,” Journal of Financial Economics, 20, 293-315. IX. Financial Distress and Restructuring ☆ 1. Senbet, Lemma, and James Seward, 1995, “Financial Distress, Bankruptcy and reorganization,” Chapter 26 in Jarrow, Maksimovic and Ziemba ed.: Handbooks in Operations Research and Management Science, Vol 9. ☆ 2. Gertner, Robert, and David Sharfstein, 1991, “A Theory of Workouts and the Effects of Reorganization Law,” Journal of Finance, 46, 1189-1222. ★ 3. Andrade, Gregor, and Steven Kaplan, 1998, “How Costly Is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions That Became Distressed,” Journal of Finance, 53, 1443-1493. △ 4. Pulvino, Todd C., 1998, “Do Asset Fire Sales Exist? An Empirical Investigation of Commercial Aircraft Transactions,” Journal of Finance, 53, 939-978. 5. Opler, Tim C., and Sheridan Titman, 1994, “Financial Distress and Corporate Performance,” Journal of Finance, 49, 1015-1040. X. Event Study Issues ☆ 1. Campbell, John Y., Andrew W. Lo, and A. Craig Mackinlay, 1997, The Econometrics of Financial Markets, Chapter 4. ★ 2. Loughran, Tim, and Jay R. Ritter, 2000, “Uniformly Least Powerful Tests of Market Efficiency,” Journal of Financial Economics, 55, 361-389. Corporate Finance Seminar I National Taiwan University Fall, 2001 Konan Chan 7 ★ 3. Lyon, John D, Brad M. Barber, and Chih-ling Tsai, 1999, “Improved Methods for Tests of Long-Run Abnormal Stock Returns,” Journal of Finance, 54, 165-201. 4. Brown, Stephen J., and Jerold B. Warner, 1985, “Using Daily Stock Returns: The Case of Event Studies,” Journal of Financial Economics, 14, 3-31. 5. Barber, Brad M., and Lyon, John D, 1996, “Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test-Statistics,” Journal of Financial Economics, 41, 359-399. 6. Fama, Eugene, 1998, “Market Efficiency, Long-Term Returns, and Behavioral Finance,” Journal of Financial Economics, 49, 283-306. XI. Others ☆ 1. Anderson, Ronald W., and Suresh Sundaresan, 1996, “Design and Valuation of Debt Contracts,” Review of Financial Studies, 9, 37-68. ★ 2. La Porta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer, 1999, “Corporate Ownership Around the World,” Journal of Finance, 54, 471-517. ★ 3. La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny, 2000, “Investor Protection and Corporate Governance,” Journal of Financial Economics, 58, 3-27. ★ 4. Chance, Don M., Raman Kumar, and Rebecca B. Todd, 2000, “The ‘Repricing’ of Executive Stock Options,” Journal of Financial Economics, 57, 129-154.