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HU Credits:
1
Degree/Cycle:
2nd degree (Master)
Responsible Department:
Business Administration
Semester:
1st Semester
Teaching Languages:
English
Campus:
Mt. Scopus
Course/Module Coordinator:
Prof Effie Benmelech
Coordinator Office Hours:
By appointment
Teaching Staff:
Prof Effie Benmelech
Course/Module description:
This course provides an empirical treatment of major topics in corporate
finance, including: capital structure and financial contracting; real investment behavior; financial
intermediation; financial distress; internal capital markets and household debt.
Course/Module aims:
Learning outcomes - On successful completion of this module, students should be able to:
This course provides a theoretical and empirical treatment of major topics in information economics, securitization, regulation and household financeץ
Attendance requirements(%):
100%
Teaching arrangement and method of instruction:
Course/Module Content:
Topic Schedule:
Date Time Topic
Class 1
12-13
14:30-17:15
Liquidity Constraints
Class 2
12-16
14:30-17:15
Liquidation Values and Contracting
Class 3
12-17
14:30-17:15
Financial Distress
Class 4
12-18
14:30-17:15
Internal Capital Markets
Class 5
12-20
14:30-17:15
The Macro Effects of Household Debt
Required Reading:
1. Liquidity Constraints
Blanchard, O. J., Lopez-de-Silanes, F., and A., Shliefer (1994), “What Do Firms Do
with
Cash Windfalls?” Journal of Financial Economics 36: 337-360.
* Fazzari, S.M., R.G. Hubbard and B.C. Petersen (1988), “Financing Constraints and
Corporate Investment,” Brookings Papers on Economic Activity, 141-195.
* Kaplan, Steven N. and Luigi Zingales (1997), “Do Investment-Cash Flow Sensitivities
Provide Useful Measures of Financing Constraints?,” Quarterly Journal of Economics 112: 169-
216.
* Kashyap, Anil, Takeo Hoshi, and David Scharfstein (1991), “Corporate Strcuture,
Liquidity and Investment: Evidence from Japanese Industrial Groups,” Quarterly Journal of
Economics 106: 33-60.
Stein, Jeremy C. (2003), “Agency, Information and Corporate Investment,” chapter 2 in
the Handbook of the Economics of Finance, edited by George Constantinides, Milton Harris and
Rene Stulz. Amsterdam: North-Holland. (READ PART A).
* Rauh, Joshua, (2006), “Investment and Financing Constraints: Evidence from the
Funding of Corporate Pension Plans,” Journal of Finance 61: 33-71.
2. Liquidation Values
* Benmelech, Efraim (2009), “Asset Salability and Debt Maturity: Evidence from 19th
Century American Railroads,” Review of Financial Studies 22: 1545-1583.
* Benmelech, Efraim, Mark Garmaise and Toby Moskowitz (2005), “Do Liquidation
Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning
Regulation,” Quarterly Journal of Economics 120: 1121-1154.
* Benmelech, Efraim and Nittai Bergman (2008), “Liquidation Values and the Credibility
of Financial Contract Renegotiation: Evidence from U.S. Airlines,” Quarterly Journal of
Economics 123: 1635:1677.
Benmelech, Efraim and Nittai Bergman (2009), “Collateral Pricing,” Journal of Financial
Economics 91 (2009) 339-360.
* Shleifer, Andrei, and Robert Vishny (1992), “Liquidation Values and Debt Capacity: A
Market Equilibrium Approach,” Journal of Finance 47: 1343-1366.
Copyright © 2018 Efraim Benmelech. 3
3. Financial Distress + Bankruptcy
* Asquith, Paul, Robert Gertner and David Scharfstein (1994), “Anatomy of Financial
Distress: An Examination of Junk-Bond Issuers,” Quarterly Journal of Economics 109: 625-658.
* Andrade Gregor, and Steven N. Kaplan (1998), “How Costly is Financial (not
Economic) Distress? Evidence from Highly Leveraged Transactions that Become Distressed,”
Journal of Finance 53: 1443-1493.
* Stromberg, Per (2000), “Conflicts of Interest and Market Illiquidity in Bankruptcy
Auctions: Theory and Tests,” Journal of Finance 55: 2641-2692
Almeida, Heitor and Thomas Philippon, (2007), “The Risk-Adjusted Cost of Financial
Distress,” Journal of Finance 62: 2557-2586.
Baird, Douglas G., and Robert K. Rasmussen, (2002) “The End of Bankruptcy”,
Stanford Law Review, 751-789.
Benmelech, Efraim and Nittai Bergman (2011), “Bankruptcy and the Collateral
Channel,” Journal of Finance 66: 308-332.
Gertner, Robert and David Scharfstein (1991), “A Theory of Workouts and the Effects of
Reorganization Law,” Journal of Finance 46: 1189-1222.
Warner, Jerold, (1977) “Bankruptcy Cost: Some Evidence,” Journal of Finance 32: 337-
348
4. Internal Capital Markets
Background articles:
Stein, Jeremy C. (1997), “Internal Capital Markets and the Competition for Corporate
Resources,” Journal of Finance 52: 111-133.
Scharfstein, David S. and Jeremy C. Stein (2000), “The Dark Side of Internal Capital
Markets: Divisional Rent-Seeking and Inefficient Investment,” Journal of Finance 55: 2537-
2564.
Investment and internal capital market
Rajan, Raghuram, Henri Servaes and Luigi Zingales (2000), “The Cost of Diversity: The
Diversification Discount and Inefficient Investment,” Journal of Finance 55: 35-80.
Copyright © 2018 Efraim Benmelech.
Additional Reading Material:
Course/Module evaluation:
End of year written/oral examination 0 %
Presentation 0 %
Participation in Tutorials 0 %
Project work 100 %
Assignments 0 %
Reports 0 %
Research project 0 %
Quizzes 0 %
Other 0 %
Additional information:
I expect students to prepare for class by reading the required papers and if time
permits the suggested papers as well.
How to Write: Referee Reports: Some General Guidelines for Referee Reports
Structure. While there are no absolute requirements, you should try to cover the following four
areas, and keep in mind that simply summarizing the paper is insufficient. Putting in headings is
certainly not necessary…if you can integrate it all together, that’s fine. But, if there is any doubt,
headings aren’t a bad idea. In terms of overall length, the report should be no more than about
five pages. See the attached sample report for a good example.
1. Summary. The summary need not be more than a quarter of your report. You might briefly
state what the authors have set out to do, why it might be important, and what results they claim
to find. Save the more specific description of the methodology for the general assessment and
specific comments section. That way you can save the detail for what you think is important (or
wrong).
2. General Assessment. This is the key part of your referee report. Don’t jump into technical
econometric issues unless they are central. Instead, take a more critical look at your summary.
Are they asking an interesting question? What are the main problems and contributions?
3. Specific Comments. Here is where you deal with econometric and theoretical points. It is
perfectly fine to do these bullet point style.
4. Extensions. These can also be bullet points if you like. Try to be as specific as you can about
the extensions. Avoid vague things like “include investor demand variables” in the analysis.
Spend a sentence on how you might measure this. Think carefully about why the author hasn’t
already extended the paper in this way. Many times they’ve overlooked it. Sometimes, there are
good reasons. It’s fine to qualify your idea in this way. I’d say the best extensions are less about
fixing papers, and more about building on it, or connecting it to something else. Maybe propose
a way to test a further implication of what they have concluded.
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