Background and overall aim

This is a course for PhD students (and advanced master's students) interested in research. We will cover selected topics from the empirical corporate finance literature, as well as discuss the most important econometric techniques.

We start with an overview of the most important econometric techniques used in Empirical Corporate Finance research. After that, we will cover a small number of topics in Empirical Corporate Finance.

Methods: sources of endogeneity problems, difference-in-difference estimators (including modern methods to solve problems with multiple treatments), instrumental variables, regression discontinuity design, clustered standard errors, etc. In addition to lectures, we will also solve hands-on problems and do simulation sessions.

The corporate finance topics include, but are not limited to, the following:

· Labor & Finance (intersection of Labor Economics and Corporate Finance): Typical research questions in this area are: What happens to employees after a large corporate reorganization, like a merger, acquisition, or bankruptcy? What is the role of firms in the growing income inequality in most countries? What determines the bargaining power between workers and firms? Should firms only care about shareholder value, or should they consider other stakeholders, such as employees? What is the optimal compensation package of managers and other employees?

· Bankruptcy and financial distress: How does the bankruptcy process work? Why is it not true that bankruptcy is always bad for the firm? What is the optimal bankruptcy process from society’s point of view? What are the incentives of each involved party?

· Credit Default Swaps (CDS) and their effects on firms: How do CDSs work? Why is it not true that CDSs are always bad for firms, investors, and employees? What are the positive and negative effects of CDSs from society’s point of view? What is the so-called Empty Creditor Problem?

· ESG (potential bonus topic): Environmental, Social, and Governance (ESG) investing, sometimes also called Green Finance or Sustainable Finance, has become an important topic in recent years. If time permits, we might look at some recent papers in this literature. Important research questions, for example, include whether an investor’s shift from brown stocks to green stocks actually reduces emissions at the firm level.

Relevance. The research areas listed above are currently all very active areas of research. They are also close to the instructor’s research focus, which allows the students to quickly push their knowledge to the research frontier.

Attendance is mandatory.

The course alternates between WU and CEU.

Learning activities and teaching methods

The course will involve a mix of lectures by the instructor and presentations by students. For each of the topics covered in the course, the instructor will start with an overview of the topic, the main concepts, and the main research questions. This will allow students to quickly get “up to speed” with the literature in this topic. After this introduction, the students will present a few interesting papers in each topic.

For example, in the topic “Bankruptcy and Financial Distress”, the introduction might include an overview of the U.S. bankruptcy process, an explanation of the differences between Chapter 7 and Chapter 11 bankruptcy, the difference between economic distress and financial distress, the concept of the bankruptcy “waterfall”, the conflicts of interest between equity holders, banks, workers, etc.

Textbooks: There is no textbook in this course.

For background reading, see “Miscellaneous”.

Slides: The instructor will provide slides and/or lecture notes for most of the classes where he presents. In all other classes, students will have to present and prepare slides.

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Course prerequisites

• Basic statistics course (mean, median, standard deviation, testing, standard errors, p-values, etc.)
• Basic econometrics course (linear regression with multiple variables; interpretation of coefficients; dummy variables vs. scalar variables, fixed effects, multi-collinearity, R-squared, etc.)

DanisA@ceu.edu

LITERATURE

Textbooks:

There is no textbook in this course.

However, if you really want to have some background reading, here are a few good graduate-level textbooks: 

a. Roberts, Michael, and Toni Whited, Endogeneity in Empirical Corporate Finance, 2012.

b. Angrist, Joshua, and Jorn-Steffen Pischke, Mostly Harmless Econometrics: An Empiricist’s Companion, 2009.

c. William Greene, Econometric Analysis, 2011.

d. Advanced level: Wooldridge, Jeffrey, Econometric Analysis of Cross Section and Panel Data, 2010.

e. If you haven’t taken corporate finance courses at the master’s level, consider reading an MBA-level textbook, such as:

i. Berk/DeMarzo: Corporate Finance

ii. Ross/Westerfield/Jaffee/Jordan: Corporate Finance