Columbia University
Graduate School of Business
Empirical Methods in Corporate Finance
Professors Emily Breza and Mauricio Larrain
Fall 2015
Contact Details:
Professors: Emily Breza and Mauricio Larrain
Uris Hall 329
Emails: [email protected] and [email protected]
Class Overview:
This course provides a comprehensive overview of the methods used by empirical corporate
finance researchers. Our goal is to familiarize you with existing and new techniques to produce
research in empirical corporate finance. The A term course will be organized around methods.
The B term course will be organized around topics. We aim to provide an overview of the
empirical research in most major corporate finance topics including: financial constraints and
investment; corporate governance; finance and development; financial crises; capital structure
and financial contracting; among others. The course is designed for Ph.D. students interested
in corporate finance. It will be based on academic articles in finance and economics.
Course Requirements and Grading:
Course requirements for A term include: (1) regular attendance, participation, and preparing
reading responses for class [20%], (2) research prospectus [10%] (3) referee report [30%], and
(4) a midterm, which is an exercise in analysis and replication of a recent corporate finance
paper [40%].
Course requirements for B term include: (1) regular attendance, participation, and preparing
reading responses for class [20%], (2) homework assignments [20%] (3) referee report [20%],
and (4) a final research project [40%].
Research Project:
At the end of the semester, the final deliverable will be an extended abstract for an original research project. You will be expected to propose a feasible empirical corporate finance
research project including a research question and hypothesis, motivation section, and literature review. The extended abstract should draw upon the tools covered in class and include a
detailed description of the econometric techniques required to answer the proposed question.
You will also be required to work with some data to provide summary statistics. Your final
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write-up should include a plan for how to obtain the full data required to carry out the full
study. Students will present their projects in the last class session.
Text Books and Resources:
There are two relevant textbooks:
• Angrist, J., and J. Pischke, 2009, “Mostly Harmless Econometrics: An Empiricist’s
Companion,” Princeton University Press.
(This book is required reading. We will cover most of the book during the first several
lectures.)
• Wooldridge, J., 2010, “Econometric Analysis of Cross Section and Panel Data,” The
MIT Press.
(This book will be used for select topics and is a recommended reference)
The following survey paper is an essential guide for the corporate finance empiricist:
• Roberts, M., and T. Whited, 2012, “Endogeneity in Empirical Corporate Finance,”
Handbook of the Economics of FInance, Chapter 7, pages 493-572.
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A TERM: EMPIRICAL METHODS
Lecture 1 - Introduction
Inference Problem in Corporate Finance; Course Content; Agnostic Regression; Basics of
Causal Regressions; Applications; Financial Constraints and Investment
References
• Angrist, J., and J. Pischke, 2010, “The Credibility Revolution in Empirical Economics:
How Better Research Design Is Taking the Con Out of Econometrics,” Journal of
Economic Perspectives 24, 3-30.
• Bowen, D., L. Fresard, and J. Tallard, “What’s Your Identification Strategy? Technology Adoption within Corporate Finance,” Mimeo, University of Maryland Smith
School of Business.
• Leamer E., 1983, “Let’s Take the Con Out of Econometrics,” American Economic
Review 73, 31-43.
• Petersen, M., 2009, “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches,” Review of Financial Studies 22, 435-480.
• Petersen, M., and R. Rajan, 1994, “The Benefits of Lending Relationships: Evidence
from Small Business Data,” Journal of Finance 49, 3-37.
• Fazzari, S., G. Hubbard, and B. Petersen, 1988, “Financing Constraints and Corporate
Investment,” Brookings Papers on Economic Activity 1, 141-195.
• Kaplan, S., and L. Zingales, 1997, “Do Investment-Cash Flow Sensitivities Provide
Useful Measures of Financing Constraints? ” Quarterly Journal of Economics 112,
169-215.
• Lamont, O., 1997, “Cash Flow and Investment: Evidence from Internal Capital Markets,” Journal of Finance 52, 83-109.
Lecture 2 - Causal Regressions: Differences-in-Differences
Basics Difference-In-Differences; General Framework; Checking Internal Validity; Application: Anti-takeover Laws
References
• Agarwal, S., S. Chomsisengphet, N. Mahoney, and J. Stroebel, 2015, “Regulating Consumer Financial Products: Evidence from Credit Cards,” Quarterly Journal of Economics 130, 114-164.
• Bertrand, M., E. Duflo, and S. Mullainathan, 2004, “How Much Should We Trust
Differences-in-Differences Estimates?” Quarterly Journal of Economics 119, 249-275.
• Bertrand, M., and S. Mullainathan, 2003, “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences,” Journal of Political Economy 111, 1043-1075.
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• Campello, M., and M. Larrain, 2015, “Enhancing the Contracting Space: Collateral
Menus, Access to Credit, and Economic Activity,” Forthcoming Review of Financial
Studies.
• Hertzberg, A., J. Liberti, and D. Paravisini, 2011, “Public Information and Coordination: Evidence from a Credit Registry Expansion,” Journal of Finance 66, 379-412.
• Paravisini, D., V. Rappoport, P. Schnabl, and D. Wolfenzon, 2014, “Dissecting the
Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data.” Review
of Economic Studies.
Lecture 3 - Causal Regressions: Discontinuities and Event Studies
+ Guest Speaker (Johannes Stroebel, NYU)
Regression Discontinuity Design in Corporate Finance; Event Studies
References
• Cheng, I., H. Hong, and K. Shue, 2014, “Do Managers Do Good with Other People’s
Money?,” Mimeo, Chicago Booth School of Business.
• Cuñat, V., M. Gine, and M. Guadalupe, 2012, “The Vote Is Cast: The Effect of
Corporate Governance on Shareholder Value,” Journal of Finance 67, 1943-1977.
• Liberman, A., 2013, “The Value of a Good Credit Reputation: Evidence from Credit
Card Renegotiations,” Mimeo, New York Stern School of Business.
Lecture 4 - Instrumental Variables
Two-stage Least Squares; Finding an Instrumental Variable; Application; Investment-Cash
Flow Sensitivity; Wald Estimator
References
• Açemoglu, D., S. Johnson, and J. Robinson, 2001, “The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review 91,
1369-1401.
• Angrist, J., and A. Krueger, 1991, “Does Compulsory School Attendance Affect Schooling and Earnings?,” Quarterly Journal of Economics 106, 979-1014.
• Bennedsen, M., K. Nielsen, F. Perez-Gonzalez, and D. Wolfenzon, 2007, “Inside the
Family Firm: The Role of Families in Succession Decisions and Performance,” Quarterly
Journal of Economics 122, 647-691.
• Chaney, T., D. Sraer, and D. Thesmar, 2012, “The Collateral Channel: How Real Estate
Shocks Affect Corporate Investment,” American Economic Review 102, 2381-2409.
• Giroud, X., H. Mueller, A. Stomper, and A. Westerkamp, 2012, “Snow and Leverage,”
Review of Financial Studies 25, 680-710.
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• Guiso, L., P. Sapienza, and L. Zingales, 2004, “Does Local Financial Development
Matter?,” Quarterly Journal of Economics 119, 929-969.
• Rauh, J., 2006, “Investment and Financing Constraints: Evidence from the Funding of
Corporate Pension Plans,” Journal of Finance 61, 33-71.
Lecture 5 - Constructing a Paper and Matching Methods
+ Guest Speaker (Daniel Wolfenzon, Columbia)
Personal experience and advice on constructing a paper. Matching.
References
• Almeida, H., M. Campello, B. Laranjeira, and S. Weisbenner, 2011, “Corporate Debt
Maturity and The Real Effects of The 2007 Credit Crisis,” Critical Finance Review 1,
3-58.
Lecture 6 - Constructing a Paper and Randomized Controlled Trials
Personal experience and advice on constructing a paper. Randomized Controlled Trials
(RCTs).
References
• Banerjee, A., E. Duflo, R. Glennerster, and C. Kinnan, 2013, “The Miracle of Microfinance? Evidence from a Randomized Evaluation,” NBER Working Paper, No. 18950.
• Bertrand, M., and A. Morse, 2011, “Information Disclosure, Cognitive Biases, and
Payday Borrowing,” Journal of Finance 66, 1865-1893.
• Bursztyn, L., and F. Ederer, 2014, “Understanding Mechanisms Underlying Peer Effects: Evidence from a Field Experiment on Financial Decisions,” Econometrica 82,
1273-1301.
• De Mel, S., D. McKenzie, and C. Woodruff, 2008, “Returns to Capital in Microenterprises: Evidence from a Field Experiment,” Quarterly Journal of Economics 123,
1329-1372.
• Karlan, D., and J. Zinman, 2009, “Observing Unobservables: Identifying Information
Asymmetries with a Consumer Credit Field Experiment,” Econometrica 77, 1993-2008.
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B TERM: APPLICATIONS
Lecture 7 - Applications: Finance, Growth, and Development
References
• Adelino, M., I. Cunha, and M. Ferreira, 2014, The Economic Effects of Public Financing: Evidence from Municipal Bond Ratings Recalibration, Mimeo, Duke Fuqua School
of Business.
• Beck, T., R. Levine, and A. Levkov, 2010, “Big Bad Banks? The Winners and Losers
from Bank Deregulation in the United States,” Journal of Finance 65, 1637-1667.
• Giné, X. and M. Kanz, 2014, “The Economic Effects of a Borrower Bailout: Evidence
from an Emerging Market,” World Bank Policy Research Working Paper WPS7109.
• Jayaratne, J., and P. Strahan, 1996, “The Finance Growth Nexus: Evidence from Bank
Branch Deregulation,” Quarterly Journal of Economics 111, 639-670.
• Khwaja, A., and A. Mian, 2005, “Do Lenders Favor Politically Connected Firms? Rent
Provision in an Emerging Financial Market,” Quarterly Journal of Economics 120,
1371-1411.
• Larrain, M., 2015, “Capital Account Opening and Wage Inequality,” Review of Financial Studies, 28(6): 1555-1587
• La Porta, R., F. Lopez-De-Silanes, A. Shleifer, and R. Vishny, 1997, “Legal Determinants of External Finance,” Journal of Finance 52, 1131-1150.
• Ponticelli, J., 2014, “Court Enforcement and Firm Productivity: Evidence from a
Bankruptcy Reform in Brazil,” Mimeo, Chicago Booth School of Business.
• Rajan, R., and L. Zingales, 1998, “Financial Dependence and Growth,” American Economic Review 88, 559-586.
Lecture 8 - Applications: Financial Crisis
References
• Agarwal, S., S. Chomsisengphet, N. Mahoney, and J. Stroebel, 2013, “Regulating Consumer Financial Products: Evidence from Credit Cards,” NBER Working Paper, No.
19484.
• Brunnermeier, M., 2009, “Deciphering the Liquidity and Credit Crunch 2007-2008,”
Journal of Economic Perspectives 23, 77-100.
• Chodorow-Reich, G., 2014, “The Employment Effects of Credit Market Disruptions:
Firm-level Evidence from the 2008-9 Financial Crisis” Quarterly Journal of Economics
129, 1-59
• Keys, B., T. Mukherjee, A. Seru, and V. Vig, 2010, “Did Securitization Lead to Lax
Screening? Evidence from Subprime Loans,” Quarterly Journal of Economics 125,
307-362.
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• Mian, A., and A. Sufi, 2009, “The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis,” Quarterly Journal of Economics 124,
1449-1496.
• Mian, A., and A. Sufi, 2014, “What Explains the 2007-2009 Drop in Employment?,”
Econometrica 82, 2197-2223.
Lecture 9 - Peer Effects Estimation + Externalities
+ Guest Speaker (Andres Liberman, NYU)
References
• Açemoglu, D., and J. Angrist, 2001, “How Large are Human-Capital Externalities?
Evidence from Compulsory-Schooling Laws,” NBER Macroeconomics Annual 2000 15,
9-74.
• Cohen, L., A. Frazzini, and C. Malloy, 2010, “Sell-Side School Ties,” Journal of Finance
65, 1409-1437.
• Hochberg, Y., A. Ljungqvist, and Y. Lu, 2007, “Whom You Know Matters: Venture
Capital Networks and Investment Performance,” Journal of Finance 62, 251-301.
• Shue, K., 2013, “Executive Networks and Firm Policies: Evidence from the Random
Assignment of MBA Peers,” Review of Financial Studies 26, 1401-1442.
Lecture 10 - Applications: Financial Contracting and CEOs
References
• Benmelech, E., M. Garmaise, and T. Moskowitz, 2005, “Do Liquidation Values Affect
Financial Contracts? Evidence from Commercial Loan Contracts and Zoning Regulation,” Quarterly Journal of Economics 120, 1121-1154.
• Bertrand, M., and S. Mullainathan, 2003, “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences,” Journal of Political Economy 111, 1043-1075.
• Lilienfeld-Toal, U., D. Mookherjee, and S. Visaria, 2012, “The Distributive Impact
of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals,”
Econometrica 80, 497-558.
• Malmendier, U., and G. Tate, 2005, “CEO Overconfidence and Corporate Investment,”
Journal of Finance 60, 2661-2700.
• Shleifer A, and R. Vishny, 1992, “Liquidation Values and Debt Capacity: A Market
Equilibrium Approach,” Journal of Finance 47, 1343-1366.
• Shue, K., and R. Townsend, 2013, “Swinging for the Fences: Executive Reactions to
Quasi-Random Option Grants,” Mimeo, Chicago Booth School of Business.
• Vig, V., 2013, “Access to Collateral and Corporate Debt Structure: Evidence from a
Natural Experiment,” Journal of Finance 68, 881-928.
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Lecture 11 - Corporate Governance and Capital Structure
References
• Ljungqvist, A. and F. Heider, 2014, “As Certain as Debt and Taxes: Estimating the
Tax Sensitivity of Leverage from Exogenous State Tax Changes,” Forthcoming Journal
of Financial Economics.
• Perez-Gonzalez, F., F. Panier, and P. Villanueva, 2014, “Capital Structure and Taxes:
What Happens When You (Also) Subsidize Equity?” Mimeo, Stanford GSB.
Lecture 12 - Student Presentations
Students present their research proposals
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