Study Questions – MBAX 6200 (November 15, 2006)
1. Discuss the advantages and disadvantages of common stock residual claims. [jensen- smith.doc]
2. Discuss the sources of conflict of interest between managers and shareholders. Discuss the mechanisms to control this conflict of interest. [jensen-smith.doc]
3. Target shareholders generally receive substantial positive abnormal returns during takeovers. What are the hypothesized sources of these abnormal returns? What is the empirical evidence on this? [target-gain.doc] [NewEvidenceMergers.ppt] [monopoly.ppt] [b-shleifer-vishny.ppt]
4. What is the empirical evidence on returns to bidders in takeovers? Discuss potential problems in the traditional ways of measuring returns to bidders in takeovers. [b- hirshleifer.ppt] [CEO-Overconfidence-Turnover.ppt] [NewEvidenceMergers.ppt]
5. (a) During the last decade corporations are said to be refocusing. What is meant by “corporate refocusing”? Discuss why corporations might be refocusing; please consider the evidence in Krishnaswami and Subramaniam (1999), Ahn and Denis (2004) and Daley, et al (1997). (b) What might be the role of market disciplinary forces, and internal governance mechanisms in spurring corporate refocusing as discussed in Berger and Ofek (1999).
7. Discuss the role of independent directors, director compensation, and board committee structure in corporate governance. What is the empirical evidence on these issues? [b- black.ppt] [b-carey-elson.ppt] [Boards-1997-2003.ppt]
8. (a) Jensen and Murphy's (1990) pay-performance sensitivity (with respect to compensation, dismissal, and stock ownership) is statistically significant, but the magnitude seems small for an occupation in which incentive pay is expected to play an important role. Discuss the arguments and evidence in Hall and Liebman (1998) as it bears on the above question. (b) What is the role of management compensation structure on misreporting as documented in Burns and Kedia (2004)?
9. Describe the capital markets' reaction to announcements of new security offerings. Discuss the theories (optimal capital structure, implied changes in net operating cashflow, information asymmetry, unanticipated announcement) that have been suggested to understand this set of empirical facts. [raising-capital.ppt]
10. a. What are the advantages and disadvantages of the traditional ways of dealing with risk in capital budgeting? b. What is a real option? When is it more valuable to consider the real options related to a capital budgeting project? [real-options.ppt] 11 Why are initial public offerings underpriced as discussed by Welch and Ritter (2002)? Please be sure to discuss the theories based on asymmetric information (both when the issuer is more informed than the investor, and the investors are more informed than issuer), theories based on symmetric information, and theories focusing on the allocation of IPO shares. [IPO.ppt]
12. Why do firms go public. Please discuss the life-cycle and market-timing theories as discussed in Welch and Ritter (2002).
13. (a) With the help of a numerical example explain the underinvestment problem. How can a business avoid this problem? [underinvestment.doc] (b) Kayhan and Titman (2004) find that prior stock returns have a very significant impact on a firm’s capital structure. Why might this be the case? [CapitalStructure.ppt]
14. Kaplan and Stromberg (2001, 2003) note that VC contracts have the following features: antidilution rights, automatic conversion, and vesting and non-compete clauses. Describe these contractual features. What is the economic justification for including it in a VC contract? [VC-Contracting.ppt]
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Please note: The Final Exam will consist of five questions drawn from the above. You will be asked to answer three of these five questions. It is expected that the answer to each question would take about 30 minutes.