<P>
FINANCIAL ECONOMICS </P>
<P>Franklin Allen
Department of Finance, Stern School of Business</P>
<P>and </P>
<P>Douglas Gale
Department of Economics, Faculty of Arts and Sciences</P>
<P>This course is intended to give Ph. D. students an advanced course in Corporate Finance.The approach will be to first develop theoretical tools and then show how they can be applied to analyze the financial decisions of the firm. The usual prerequisites are the core courses for the Ph.D. The course will start on Wednesday January 22. Lectures will be held in Room 715, 269 Mercer Street, on Wednesday and Friday at 10:00 AM. The final assessment for the course will be based on a final exam (50%) and a term paper (50%), which can be written during the summer. </P>
<P>Course Outline</P>
<P>Topic 1: What is Corporate Finance? (2 sessions)
This section will provide an overview of the topic.In particular it will contrast what will be covered in the course and what is typically covered in an MBA Corporate Finance Course.</P>
<P>Topic 2: General Equilibrium Models of Corporate Finance (1-2 sessions)</P>
<P>Spanning, unanimity, and the firm's objective function
The Modigliani-Miller theorem, capital structure, and payout policy
Market incompleteness, taxes and bankruptcy</P>
<P>Topic 3:Contract Theory I:The Principal-Agent Problem (4 sessions)</P>
<P>Incentive effects of debt and equity
Risk shifting
Free cash flow
Optimal separation of ownership and control
Executive compensation</P>
<P>Topic 4:Contract Theory II:Renegotiation and Dynamic Contracting (2 sessions)</P>
<P>Dynamic theories of capital structure
Incomplete contracts</P>
<P>Topic 5:Signaling Games (2-3 sessions)</P>
<P>Capital structure
Dividends
Security design
Credit rationing</P>
<P>Topic 6:Liquidity and Corporate Finance (4-6 sessions)</P>
<P>Flexibility of financing modes
Firm decisions and intersectoral flows of funds
Bankruptcy and liquidity
Security design and liquidity </P>
<P>Topic 7:Corporate governance (3 sessions)</P>
<P>Separation of ownership and control
Internal versus external finance
Takeovers
Competition and corporate governance
Law and finance</P>
<P>Topic 8:Behavioral Corporate Finance (2 sessions)</P>
<P>Dividend policy and self-control
Takeovers
Investment decisions and overconfidence
</P>