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Prof. Thomas J. Chemmanur
Office: Fulton 336
Phone: (617) 552 3980
Spring 2025
E-mail: chemmanu@bc.edu (preferred mode of communication)
Teaching Assistant (TA) for the Course:
Shashwat Agrawal
Office : Fulton Hall 154X
E-mail : agrawasb@bc.edu
Outline of topics with interesting links:
Session 1 Introduction and overview of the course. Valuation--review of conceptual issues. Valuation methodologies. Performance of alternative valuation techniques.
CASE DISCUSSION: Atlantic Corporation
Please download these three valuation examples: (MS Format) (Rich Text Format)
Lecture Slides on Valuation I
Review Chapter 17.3 (RWJ).
READING Kim, M., and J.R. Ritter: "Valuing IPOs" (Course Pack).
ADVANCED READING Welch, Ivo, “A First Course in Corporate Finance,” Chapter 10: “Valuation using Comparables.”
PROBLEM SET - I (All problems)
LINK: Securities and Exchange Commission Website
LINK: Advanced Video: Robert Shiller Nobel Prize Lecture on Stock Valuation
Session 2 Financial contracting. The role of the venture capitalist and the private placement market in the early stages of financing a company. The incentive effects of alternative venture capital contracts: Structuring a venture capital financing deal. Two rationales for why venture capital deals often involve warrants and convertible securities.
Anatomy of a Term Sheet (PDF file)
More Term Sheet Explanations (PDF file)
Book Recommendation (Word file)
Lecture Slides on Venture Capital Financing
READING Sahlman, W. A., "Aspects of financial contracting in venture capital" (Course Pack)
ADVANCED READING (Not Required for the Exam). Chemmanur, T. J., Krishnan, K., & Nandy, D. K. (2011) "How does venture capital financing improve efficiency in private firms? A look beneath the surface", The Review of Financial Studies, 24(12), 4037-4090.
ADVANCED READING (Not Required for the Exam). Mollick, E., "The dynamics of crowdfunding: An exploratory study"
ADVANCED READING (Not Required for the Exam): Chemmanur, T. J., Loutskina, E., & Tian, X. (2014). Corporate venture capital, value creation, and innovation. The Review of Financial Studies, 27(8), 2434-2473.
ADVANCED READING (Not Required for the Exam): Chemmanur, Thomas J., Tyler J. Hull, and Karthik Krishnan. "Do local and international venture capitalists play well together? The complementarity of local and international venture capitalists." Journal of Business Venturing 31, no. 5 (2016): 573-594.
READING: Kaplan, S. N., & Strömberg, P. (2003). Financial contracting theory meets the real world: An empirical analysis of venture capital contracts. The Review of Economic Studies, 70(2), 281-315.
READING: Smart Investors Foolish Choices
READING: How good are private equity returns?
PROBLEM SET - II (All problems)
LINK: Industry Perspectives on Private Equity
LINK: Dow Jones Private Equity Analyst
LINK: Private Equity Online (Free registration required)
LINK: Private Raise (Free registration required)
LINK: Price Waterhouse Venture Capital Survey
LINK: The VC Comic Strip
LINK: An Interesting VC Blog
LINK: Another Interesting VC Blog
LINK: New York Times Deal Book
LINK: TheFunded.com
Session 3 CASE DISCUSSION AND WRITE-UP: Apex Investment Partners.
LINK: Tech Crunch
Session 4 Initial Public Offerings. Valuing IPOs. Why go public? The costs vs. benefits of going public. Theories of IPO pricing. The role of the underwriter in an IPO: The importance of underwriter reputation.
Lecture Slides on Valuing IPOs
Lecture Slides on IPO Vol I
Lecture Slides on IPO Vol II
Review Chapter 15 (BM) or Chapter 19 (RWJ).
READING Ibbotson, R., J. Sindelar, and J. R. Ritter, "The Market's problems with the pricing of Initial public offerings" (Course Pack)
Advanced Reading (Not required for the exam) Chemmanur, T., "The pricing of initial public offerings: A dynamic model with information production," pages 285-287 and 299-301 (Course Pack).
READING Kim, M., and J.R. Ritter: "Valuing IPOs".
Advanced Reading (Not required for the exam) Equity Valuation
Advanced Reading (Not required for the exam): M Gahng, JR Ritter, and D Zhang: "SPACs"
READING Loughran, Ritter, and Rydqvist: "Initial Public Offerings: International Insights"
PROBLEM SET - I: Problem 4.
LINK: OpenIPO - level the playing field
LINK: Red Herring Online
LINK: RENAISSANCE CAPITAL - THE IPO EXPERTS - IPO CALENDAR AND PROFILES
LINK: TechInvestor High-Tech IPO Watch
LINK: Hoover's Online: IPO Central
LINK: IPO Calendar
LINK: IPO Montior.com
LINK: IPO Boutique
LINK: New York Times Deal Book
LINK: IPO Scoop.com
Session 5 CASE DISCUSSION AND WRITE-UP: Immunologic Pharmaceutical Corporation: Case (A), Case (B-1), Case (B-2), Case (B-3), and Case (B-4).
The long-term (post-IPO) performance of newly public firms; Recent developments in IPOs; The relationship between management quality and IPOs; Institutional Trading in IPOs; Alternatives to Traditional IPOs for Going Public: Direct Listings and SPACs.
Lecture Slides on IPO Long Run Performance
READING Ritter, J. R., "The Long-Term performance of IPOs" (Course Pack).
Advanced Reading (Not required for the exam) Chemmanur, He and Nandy: "The Going-Public Decision and the Product Market".
Advanced Reading (Not required for the exam) Chemmanur , Hu and Huang: "The Role of Institutional Investors in Initial Public Offerings".
Advanced Reading (Not required for the exam) Chemmanur, Thomas, and Imants Paeglis: "Management Quality, Certification, and Initial Public Offerings".
Advanced Reading (Not required for the exam) Chemmanur, Thomas, and Jiao Yawen: "Dual Class IPOs: A Theoretical Analysis".
Advanced Reading (Not required for the exam) Gao, Ritter, and Zhu: "Where Have All the IPOs Gone?"
General Interest Article (Not required for the exam): "The IPO Prospectus: How to Read the Fine Print".
LINK: Analyzing an IPO Prospectus
Session 6 Capital Raising by Seasoned Firms. Review of Capital Structure under perfect capital markets: The Modigliani-Miller proposition on Capital structure. Capital structure under asymmetric information: selling equity and other securities under asymmetric information. The information effects of stock issues and repurchases.
Please download Topic Note-3 and Note-4 before coming to class (Topic Note-4 is not to be discussed in class and not required for exam!)
Lecture Slides on Capital Structure I
Lecture Slides on Capital Structure II
Review Chapters 14, 17 & 18 (BM) or Chapters 14, 15 & 16 (RWJ).
READING Asquith, P., and D. Mullins: Signaling with Dividends, Stock Repurchases, and Equity Issues, sections II- VII (Course Pack).
READING Smith, C: "Investment Banking and the Capital Acquisition Process " (Course Pack)
ADVANCED READING (Not Required for the Exam). Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592.
Session 7 The corporate governance of firms. The agency problem in corporations. The agency cost of equity. Controlling the agency problems associated with equity, and improving corporate governance through share-holder monitoring and investor activism.
CASE DISCUSSION: California PERS (A) (No write-up required)
To be discussed along with the following reading:
READING Nesbitt, S., "Long-term rewards from shareholder activism: A study of the CALPERS effect" (Course Pack).
Lecture Slides on Agency cost of Equity
LINK: Shareholders Square Table
LINK: Harvard Program on Corporate Governance
LINK: Issues in Corporate Governance
Review Chapter 16.2, 16.3 and 16.5 (RWJ)
READING Jensen, M. C., "Agency costs of free cash flow, corporate finance, and takeovers," Introduction, Sec-I, and Sec-II (Hand out in class).
LINK: Executive PayWatch
Session 8 The dividend policies of mature (seasoned) firms. Review of Dividend Policy under perfect capital markets: The Modigliani-Miller Proposition on Dividends. Dividends and Taxes. The Information content of dividends: Signaling with dividends. Share repurchases as an alternative to dividends. The dynamic aspects of dividend policy. Establishing a dividend policy for a corporation.
Current statistics on dividends and repurchases made by US firms
Please download Topic Note-1 and Note-2 before coming to class
Lecture Slides on Dividend Policy
Review Chapters 16 (BM) OR Chapter 18 (RWJ).
READING Asquith, P., and D. Mullins: Signalling with Dividends, Stock Repurchases, and Equity Issues, section I (Course Pack).
READING Chetty, R., and Saez, E: Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut
READING (ADVANCED) MM Propositions after thirty years (Course Pack).
Advanced Reading (Not required for the exam) Allen and Michaely: "Payout Policy".
Advanced Reading (Not required for the exam) Fama and French: "Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?"
PROBLEM SET- IV(B) Problems 1 to 4.
LINK: Dividend.com
LINK: Street Insider
Session 9 Mid-term Exam (In-class exam)
Session 10 First half: CASE DISCUSSION AND WRITE-UP: Dividend Policy at FPL Group Inc; To be discussed along with:
READING: The dividend cut heard around the world: The case of FPL Group Inc (Course Pack).
Second Half: Corporate Restructuring: Spin-offs, Carve-outs, Tracking Stock Issues.
Lecture Slides on Summary of Financial Policies
Lecture Slides on Restructuring
READING Cusatis, Miles, and Woolridge, “Some new evidence that spin-offs create value” (Course Pack).
READING Chemmanur and Paeglis: “Why Issue Tracking Stock? Insights from a Comparison with Spin-offs and Carve Outs”.
Advanced Reading (Not required for the exam) Chemmanur and Yan: “A Theory of Corporate Spin-offs”.
Advanced Reading (Not required for the exam) Chemmanur and Tian: "Communicating Private Information to the Equity Market before a Dividend Cut: An Empirical Analysis"
Advanced Reading (Not required for the exam) Chemmanur and Tian: "'Preparing' the Equity Market for Adverse Corporate Events: A Theoretical Analysis of Firms Cutting Dividends"
Advanced Reading (Not required for the exam) Chemmanur, Thomas, Karthik, Krishnan, and Debarshi, Nandy: "The Effects of Corporate Spin-offs on Productivity".
Advanced Reading (Not required for the exam) Khorana, A., Shivdasani, A., Stendevad, C., & Sanzhar, S. (2011). Spin‐offs: Tackling the Conglomerate Discount. Journal of Applied Corporate Finance, 23(4), 90-101.
The agency costs of debt financing. The effect of debt on corporate investment policy: under-investment and risk-shifting. The role of debt covenants in controlling the agency cost of debt. The role of convertible securities in controlling the agency problems associated with debt. The difference between bank debt and publicly traded debt. Summary on various aspects of a firm’s capital structure. Current state of the art on financial policy: What we know and what we do not know about a firm’s financial policies.
Lecture slides on Agency Cost of Debt
Lecture slides on Bank Debt
READING James, C. and P. Weir, "Are bank loans different? Some evidence from the stock market" (Course Pack)
PROBLEM SET - IV(B) Problem 5.
LINK: Spinoffs News (Upcoming Spinoffs)
Session 11 First Half: Review of option pricing with the Black-Scholes formula, for a dividend paying stock. Application of the option pricing methodology to valuing corporate securities.
Please download Topic Note-7 and Note-8 before coming to class
Lecture Notes on Option Pricing Introduction
Normal Distribution Table Option Value Table
Review Chapters 20 and 22 (BM) or Chapters 21 and 22 (RWJ).
READING Courtadon, G., and J. Merrick, "The option pricing model and the valuation of corporate securities" (Course Pack).
Second Half: Valuing Warrants. Valuing convertible debt and other equity derivatives.
Please download Topic Note-9 before coming to class
Lecture Notes on Warrant Valuation
Advanced Reading (Not Required for the Exam): Chemmanur, T.J. and Fulghieri, P., 1997. Why include warrants in new equity issues? A theory of unit IPOs. Journal of Financial and Quantitative Analysis, pp.1-24.
Review Chapters 20 and 22 (BM) or Chapters 21 and 22 (RWJ).
PROBLEM SET - V (All problems)
LINK: Stockwarrants.com
Session 12 First Half: CASE DISCUSSION AND WRITE-UP: Chrysler's Warrants.
Second Half: An introduction to financial engineering. Introduction to dynamic capital budgeting: Real options.
LINK: ConvertBond.com (free registration is required to access the site)
Session 13 (Real Options Continued). The option to delay undertaking a project. The option to expand a business in scale and to enter new markets. Valuing a new venture using the real options methodology. Using the real-option methodology to develop financial strategy.
READING Copeland, T. E., and P. T. Keenan, "How much is flexibility worth?" (Course Pack).
READING "Unlocking the value of Real Options” (Only first ten pages is required reading: Rest is advanced material not required for the exam).
Lecture Notes on Real Options - Volume I
Lecture Notes on Real Options - Volume II
PROBLEM SET - VI (All problems)
LINK: The McKinsey Quarterly (free registration required)
LINK: Real-options.com
Advanced Reading (Not required for the exam) Kellogg, Ryan. "The effect of uncertainty on investment: Evidence from Texas oil drilling." American Economic Review 104, no. 6 (2014): 1698-1734.
Session 14 Final Exam Week: Final Exam (In-class exam)
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