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CorporateFinance

InvestmentsResearch Methods

Theory

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Current Topics

Firms cross-list their equity

offerings primarily for these reasons.

5

What are:

A. Higher valuationsB. Raising new capitalC. MarketingD. Increasing valueE. Removing stock price synchronicity?

6

The Catering Theory of Dividends, by these researchers, implies that managers tend to

initiate dividends wheninvestors put a relatively high

stock price on dividend payers, and tend to omit

dividends when investors prefer non-payers.

7

Who are Baker and Wurgler (2004)?

8

The market’s reaction to stock

buybacks could be based on one of these

two hypotheses.

9

What are the Traditional Signaling Hypothesis and the

Underreaction Hypothesis?

10

This form of corporate financing is said to

monitor managerial discretion and protect

shareholder value when free cash flow exists in the firm.

11

What is debt?

12

Trade-off Theory,Pecking Order Theory,

Managerial Entrenchment Theory, and Market

Timing Theory share this common finding about

capital structure. 13

What is conclude that

there is no optimal capital

structure?

14

This statement is either true or false:“Managers who engage in financial misconduct face

strong consequences”.

15

What is true?

16

Consisting of a seven-member Board of

Governors and twelve banks located in major

cities throughout the United States, this System serves as

the nation’s central bank.

17

What is the Federal Reserve

System?

18

This trading approach was banned during the 2008 Global Financial

Crisis and is now banned in Germany.

19

What is short-selling?

20

Bhattacharya & Thakor (1993) identified these

four unresolved issues in banking in their review of Contemporary Banking

Theory.

21

What are:

1. an understanding of financial innovations,

2. the difference in the sizes of the financial intermediary sector,

3. the optimal design of the banking system, and

4. the structure of the securities markets?

22

In a recent article appearing in the financial press, it was reported that merger and

acquisition activity amongst financial institutions (i.e. banks,

insurance companies, and investment firms) had reached its highest level possibly due to

this 1999 Act of Congress.23

What is the Financial Services Modernization Act (or Gramm-Leach-Bliley Act) of 1999?

24

This line shows the optimal investment

portfolios on a graph of the risk-return

relationship. 25

What is the Efficient Frontier?

26

The investment strategy that involves buying past losers and selling past winners is called by this name.

 

27

What is contrarian strategy?

28

Jegadeesh and Titman (1993) found that

momentum profits are due to this reaction.

29

What are delayed price reactions to

firm-specific information?

30

The Efficient Market Hypothesis, developed by

__________(_______), has been challenged by these anomalies that conflict

with its findings.

31

Who is Fama (1970)?

What are the anomalies of:

•Loss aversion

•Herding behavior

•Stock price momentum, etc.?

32

According to Fama and MacBeth (1973), there

are this number of testable implications of

the Capital Asset Pricing Model (CAPM).

33

What are three testable

implications?

34

An empirical research study design should

consist of at least these parts.

35

What are:

•Hypothesis(es),

•Defined variables,

•Model specification,

•Testing methodology,

•Description of the sample selection,

•Source(s) of the data,

•Period of study?36

When corporate decisions are part of a research

model, testing must occur for the possible existence of

this condition.

37

What is endogeneity?

38

This form of research builds theory from detailed

analysis.39

What is theoretical, inductive or

qualitative research?

40

Fama and French (1992, 1993, 1996) present a three-

factor model that takes this form.

41

What is

?

42

Fama and MacBeth (1973) propose the following econometric model to

test the CAPM:

where Si is a measure of non-beta risk. However, the true value of β is

unobservable and causes this statistical problem.

43

What is the errors-in-variables problem?

44

The most prominent theory tested in most of the social

sciences regarding corporate governance was

developed by these two researchers and is named __________ __________.

45

Who are Jensen & Meckling (1976) and

What is Agency Theory?

46

Kahneman and Tversky (1979) developed this

theory, which is based on an analysis of decisions

made under risk.

47

What is Prospect Theory?

48

The diagram to be viewed reflects the

“issue-invest” decision process in the

____________ Theory developed by

these authors.49

What is the Dynamic Theory and Who are

Myers & Majluf (1984)?

50

Modigliani and Miller’s works of

1958 and 1963 brought these

theories to capital structure literature.

51

What are the Theory of Investment (aka The Capital Structure Irrelevance Principle)

(1958)

and

The Trade-off Theory of Capital Structure (1963)?

52

This theory is based on the idea that an asset's returns can be predicted using the relationship between that

same asset and many common macro-economic

risk factors. 53

What is the Arbitrage Pricing

Theory (APT)?

54

Make your wager

These two factors represent the difference

between the static and the dynamic (or conditional)

Capital Asset Pricing Model (i.e. CAPM).

56

What are market risk premium and human capital ?

57

ALL THE BEST TO YOU ON YOUR EXAMS!

Overview of the PaperSTART

Managers have information and a good investment opportunity

Does issuing shares at

bargain price cost old

shareholders?

Manager does not issue shares and

passes up opportunity

Manager issues shares and takes on the opportunity

Y

N Investors reason that not issuing is

‘good news’

Investors reason that issuing is ‘bad or less good news’

Price investors are willing to pay for the

issue is affectedA

A

NOTE: Issue-invest decision is revisited

3