PHD CLASS IN EMPIRICAL METHODS IN CORPORATE FINANCE

Fall 2018

Instructor: Philipp Schnabl

Contact Information
Office: KMC 9-76
E- mail: [email protected]

Class Times:
Tuesdays, 9am-11:50am

Location:
Gruber Conference Room

Office Hours:
By appointment. Just send me an email.

Course Websites:
Nyuclasses

Course Description: This course will provide you with a toolbox and working knowledge of
The main empirical methods used in corporate finance research. We will achieve this objective
using three approaches:

(1) Lectures and econometric readings will help you learn the intuition behind each method.
This is not a theory course; this is a course for end-users of econometric tools. Accordingly,
my lectures and the readings will focus on how to use each tool for research, not how to
derive its econometric properties.

(2) You will see examples of the methods being used in recently published papers and ongoing
work. Seeing how the tools are actually used by other researchers is often far more helpful
than just reading about the underlying econometrics. I will rely on examples from the
financial intermediation literature when possible, though I will also reference examples
from other areas.

(3) You will apply the methods using actual data; i.e. you will learn by doing. There will be a
number of exercises that will have you manipulate and analyze data using the various
econometric techniques, and there will be assignments where you analyze and criticize
other researchers’ use of these tools.

Reading Materials: I will teach from slides, which I will make available to you before each class
on the course website. I will be drawing from a variety of sources including various textbooks,
journal articles, working papers, and other professors’ lecture notes. I will make note of the

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appropriate references for each lecture. The relevant methodology readings for each lecture
are provided at the bottom of this syllabus, and you are expected to read these prior to the
lecture. Additionally, most lectures will contain student presentations related to the previous
week’s lecture topic. A list of papers to be presented is given below.

Podcasts: I assign a podcast for most classes. Please listen to the podcast before class. I will
ask questions about the podcast in class.

Prerequisites: You should have taken a graduate sequence in econometrics.

Coursework: There will be four graded components to the course. These are designed to help
you learn the econometric tools used in the literature while also preparing you for a successful
career in academic research. The three assignments are as follows:

1. Empirical exercises
There will be three data exercises. You will be asked to download data and write code to
implement some of the tools taught in the course. The three exercises are designed to teach
you how to actually use these tools. It’s one thing to learn about a difference-in-difference-in-
difference estimation and another thing to actually estimate one. The assignments will be
completed in STATA.

2. In-class presentations/discussions
For most classes, there will be two papers assigned that students (regardless of whether you
are just auditing) must read and present a discussion of in-class. I will assign papers in the week
ahead. E.g. If I give a lecture on instrumental variable estimations, then at the end of the
lecture, I will papers that make use of IV strategies. Students will present their discussions of
these two papers in the second half of the next class. Each student will need to make a 10
minute presentation that discusses the paper, and each presentation will be followed by in-
class discussion. The purpose of the assignment is twofold: (1) Presentations are one key way
people in academia will come to know (and assess) you. So, it’s a good idea to get some
practice now. And (2), this will help you apply and think critically about the empirical tools
discussed in the previous lecture.

To ensure participation following each presentation, each student must also type up one
concern they had about each of the two papers their group did NOT present and hand these in
at the start of class. I will (quasi-randomly) select 1 submission for each assigned paper and
have that randomly selected student elaborate upon their comment in class. The comments
should be very short [2-3 sentences maximum] and isolate what you thought the biggest
problem of the paper was. Every failure to turn in this sheet of comments will result in a
reduction in participation points.

3. Write a research proposal

Basically, you will be asked to sketch out an outline for a possible empirical paper you could
write using tools taught in the course. You’ll need to come up with an interesting question,

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place your question in the relevant literature, sketch out an identification strategy for
answering that question, and identify the necessary datasets to implement your identification
strategy. If you want, you can think of this as a possible start to your eventual second year
paper.

4. Final exam
We will have a final take-home exam covering the main techniques covered in the course.

Limitations: Time limitations impose certain restrictions on what we can accomplish in this
course. For example, we will not cover all of the methods you might need or should know. We
also will not cover each method in excruciating detail. Arguably, you could build an entire
course around each method.

NYU Classes: Important course materials, such as lecture notes, required assignments, and
other useful information will be available on the course web page at NYU classes. You will also
use this website to turn in all of your exercises & research proposals.

Questions: Please, just ask. I don’t anticipate that everything I say in class or my lecture notes
will be crystal clear. So, if something is confusing, please just ask me.

Participation: You will be graded on participation. Basically, I expect each student to give an in-
class presentation during the semester and to turn in weekly comments on each paper. You
should consider yourself likely to get “full participation credit” if you do the presentation, turn
in your weekly comments on each paper, and participate in the discussion.

Final Take-Home Exam: The date of the final exam will be scheduled in class.

Grading: You should not be too worried about your grade; instead, you should focus on
learning the tools taught in this course. Using these tools to write a solid job market paper and
dissertation is far more important than your actual grade. When you’re on the job market, no
one will care what grade you got in your PhD courses. Instead, you should view your grade in
this course as a signal of where I think you stand in terms of your understanding and ability to
apply the tools of this course.

Your grade for the course will be determined by participation, research proposal, empirical
exercises, and an exam. There will be a total of 100 points available, and the points are
allocated as follows:

Data Exercises 30 points

In-Class Discussions/Participation 25 points
Research Proposal 20 points
Final Exam 25 points

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Grades are non-negotiable. If you have a question about feedback or an assigned grade, please
ask.

Code of Ethics: I follow the NYU Code of Ethics.

Office Hours and E-mail: If you have any questions or need assistance, just e-mail me so that
we can arrange a mutually convenient time to meet in my office. You may also send me
questions via e-mail.

Readings for Each Topic

For each lecture, I’ve listed some readings that will be helpful with understanding the
methodology being discussed. My lectures will be largely based off of these readings, and
students are expected to read these papers prior to the lecture. The lectures primarily draw
from the three sources below, and I’ve provided abbreviations that will be used to refer to
each.

1. Wooldridge, Jeffrey M., 2010, Econometric Analysis of Cross-Section and Panel Data, MIT
Press, Massachusetts, Second Edition [Wooldridge]
2. Angrist, Joshua D., and Jorn-Steffen Pischke, 2009, Mostly Harmless Econometrics,
Princeton University Press, New Jersey. [Angrist-Pischke]
3. Roberts, Michael R., and Toni M. Whited, 2011, “Endogeneity in Empirical Corporate
Finance,” University of Rochester, working paper, http://ssrn.com/abstract=1748604
[Roberts-Whited]

Linear Regression:
1. Angrist-Pischke, Sections 3.1-3.2, 3.4.1
2. Wooldridge, Sections 4.1-4.2

Causality
1. Roberts-Whited, Section 2
2. Angrist-Pischke, Section 3.2
3. Wooldridge, Sections 4.3, 4.4

Panel Data
1. Angrist-Pischke, Sections 5.1, 5.3
2. Wooldridge, Chapter 10

Instrumental Variables
1. Roberts-Whited, Section 3
2. Angrist-Pischke, Sections 4.1, 4.4, 4.6
3. Wooldridge, Chapter 5

Natural Experiments
1. Roberts-Whited, Sections 2.2 and 4

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2. Angrist-Pischke, Section 5.2

Regression Discontinuity
1. Roberts-Whited, Section 5
2. Angrist-Pischke, Chapter 6

Standard Errors, Limited Dependent Variables

1. Angrist-Pischke, Chapter 8 and Sections 3.4.2, 4.6.3
2. Petersen, M. A. 2009. Estimating Standard Errors in Finance Panel Data Sets:
Comparing Approaches. Review of Financial Studies 22:435–80.

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Class Schedule: The tentative class schedule is below. The topics covered and the date in which they are covered may change, but if
this occurs, I will notify you of any changes. Papers indicated with Instructor will be presented by the instructor.

Date Class Paper 1 Paper 2 Podcast

Intro, Linear
9/4/2018 1 Regression I

9/11/2018 Holiday
Drechsler, Itamar, Alexi
Savov Alexi, Philipp
Schnabl, “Banking on
Deposits: Maturity
Transformation without Econ Talk
Intro, Linear Interest Rate risk”, 2017 with Josh
9/18/2018 2 Regression II Working Paper (Instructor) Angrist
Kashyap, Anil K, Raghuram Hanson, Samuel, Andrei
Rajan, and Jeremy C Stein, Shleifer, Jeremy C. Stein,
2002, “Banks as liquidity and Robert W. Vishny, 2015,
providers: An explanation “Banks as patient fixed-
for the coexistence of income investors” Journal of
lending and deposit- Financial Economics 117,
Intro, Linear taking.” The Journal of 449–469
9/25/2018 3 Regression IIi Finance 57, 33–73.
Dean Karlan, Jonathan Yueran Ma, “Low Interest
Zinman, 2009, “Observing Rates and Risk Taking:
Unobservables: Identifying Evidence from Individual Eco Tyler
Information Asymmetries Investment Decisions,” Cowen
Causality and With a Consumer Credit Review of Financial Studies, Interview
Randomized Field Experiment,” forthcoming with Raj
10/2/2018 4 Experiments Econometrica, 1993-2008 Chetty
10/9/2018 Holiday

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 Scharfstein, David and Adi Kashyap, Anil and Jeremy
Sunderam, “Market Power Stein, Jeremy, 2000, “What
in Mortgage Lending and do a million observations on
the Transmission of banks say about the
Monetary Policy,” Working transmission of
Paper 2017 monetary policy?” American Econ Talk
Economic Review, 90, 407– with James
10/16/2018 5 Panel Data 428 Heckman
Chodorow-Reich, Gabriel, Jayaratne, Jith, and Philip
and Antonio Falato, 2017, Strahan, 1996, “The finance-
“The Loan Covenant growth nexus evidence from
Channel: How Bank Health bank branch deregulation,”
Transmits to the Real Quarterly Journal of
Instrumental Economy”, Working Paper Economics, 111(3), 639-670.
10/23/2018 6 Variables
Khwaja, Asim Ijaz, and Atif Mian, Atif and Amir Sufi,
Mian, 2008, “Tracing the “Credit Supply and the
Impact of Bank Liquidity Housing Boom”, 2018
Shocks: Evidence from an Working Paper
Emerging Market,” Econ Talk
Natural Experiment American Economic with Susan
10/30/2018 7 I Review, 98(4), 1413-1442. Athey
Gilje, Erik, Elena Loutskina, Agarwal, Sumit, David Lucca,
and Philip Strahan, 2016, Francesco Trebbi, and Amit
“Exporting Liquidity: Seru, 2014, “Inconsistent
Branch Banking and Regulators: Evidence from
Financial Integration”, Banking,” Quarterly Journal
Natural Experiment Journal of Finance, 71(3), of Economic, May 2014,
11/6/2018 8 II 1159-1184. 129(2), 889–938

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 Keys, Benjamin, Ranmoy Chava, Sudheer and Michael
Mukherjee, Amit Seru, and Roberts, 2008, “How Does
Vikrant Vig, 2010, “Did Financing Impact
securitization lead to lax Investment? The Role of
screening? Evidence from Debt Covenants”, Journal of
subprime loans,” Quarterly Finance, 2085-2121 Econ Talk with
Regression Journal of Economics 125, Andrew
11/13/2018 9 Discontinuity 307-362. Gelman
Chen, Brian, Samuel Greenstone, Michael, Mas
Hanson, and Jeremy Stein, Alexandre, and Hoai-Luu
“The Decline of Big-Bank Nguyen, “Do Credit Market
Lending to Small Business: Shocks Affect the Real
Dynamic Impacts on Local Economy? Quasi-
Credit and Labor Markets”, Experimental Evidence from
Working Paper 2017 the Great Recession and
Bartik instrument ‘Normal’ Economic Times,
11/20/2018 10 /Standard errors Working Paper 2012
Lenzo, Simone, “Do
Marginal Products Differ
Combining reduced from User Costs? Micro-
form/ structural Level Evidence from Italian
11/27/2018 11 estimation Firms” (Instructor)
Drechsler I, Savov A,
Schnabl P, 2017, The
Deposits Channel of
Monetary Policy, 103(4),
Writing and Quarterly Journal of
12/4/2018 12 publishing papers Economics (Instructor)

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12/11/2018 13 Final Exam

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