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.
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Fall, 2001 Konan Chan
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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
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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.
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Fall, 2001 Konan Chan
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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.
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Fall, 2001 Konan Chan
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★ 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
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★ 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.