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CorporateFinance
InvestmentsResearch Methods
Theory
10 Points
20 Points
30 Points
40 Points
50 Points
10 Points 10 Points 10 Points 10 Points
20 Points 20 Points 20 Points 20 Points
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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