PHD CLASS IN EMPIRICAL METHODS IN CORPORATE FINANCE

Fall 2017

Instructor: Philipp Schnabl

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

Class Times:
Mondays, 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 in 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 appropriate
references for each lecture. The relevant methodology readings for each lecture are provided at the

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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 podcats 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
You will be asked to download data and write code to implement some of the tools taught in the
course. The four 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 three 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, 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.

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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

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.

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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
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.

Date Class Paper 1 Paper 2 Podcast

Intro, Linear
9/11/2017 1 Regression I
Hanson, Samuel, Andrei Nagel, Stefan, 2014. The
Shleifer, Jeremy C. Stein, and liquidity premium of near-
Robert W. Vishny, 2015. Banks money assets. NBER Working
as patient fixed-income Papers 20265 National Bureau
investors. Journal of Financial of Economic Research, Inc.
Intro, Linear Economics 117, 449–469 Econ Talk with
9/18/2017 2 Regression II Josh Angrist
Kashyap, Anil K, Raghuram Drechsler I, Savov A, Schnabl P,
Rajan, and Jeremy C Stein, Banking on Deposits: Maturity
2002. Banks as liquidity Transformation without Interest
providers: An explanation for Rate risk
the coexistence of lending and
deposit-taking. The Journal of
Finance 57, 33–73.
9/25/2017 3 Causality
Atif Mian and Amir Sufi. “The S Agarwal, D Lucca and F Trebbi
Consequences of Mortgage A= Seru, Inconsistent
Credit Expansion: Evidence Regulators: Evidence from
from the U.S. Mortgage Default Banking. Quarterly Journal of
Crisis,” Quarterly Journal of Economics
Economics, November 2009,
124(4), 1449-1496. Econ Talk with
10/2/2017 4 Panel Data Susan Athey
No
10/9/2017 class

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 Khwaja, Asim Ijaz, and Atif Kashyap, Anil and Stein, Jeremy,
Mian, 2008, “Tracing the 2000, What do a million
Impact of Bank Liquidity observations on banks say
Shocks: Evidence from an about the transmission of
Emerging Market,” American monetary policy?. American Econ Talk with
Instrumental Economic Review, 98(4), 1413- Economic Review 90, 407–428 James
10/16/2017 5 Variables 1442. Heckman
10/23/2017 6 Natural Experiment I
Jayaratne, Jith, and Philip Joe Peek and Eric S Rosengren,
Strahan, 1996, “The finance- Collateral Damage: Effects of
growth nexus evidence from the Japanese Bank Crisis on Real
bank branch deregulation,” Activity in the United States,
Quarterly Journal of Economics, American Economic Review, 90 Tyler Cowen
Natural Experiment 111(3), 639-670. (1), 2000 Interview with
10/30/2017 7 II Raj Chetty
Gilje, Erik, Elena Loutskina, and Zombie Lending and Depressed
Philip Strahan, 2016, “Exporting Restructuring in Japan By
Liquidity: Branch Banking and Ricardo J. Caballero, Takeo
Financial Integration”, Journal Hoshi, and Anil K Kashyap,
of Finance, 71(3), 1159-1184. American Economic Review,
December 2008, vol. 98(5), pp. Econ Talk with
Regression 1943–77. Andrew
11/6/2017 8 Discontinuity Gelman
Keys, Benjamin, Ranmoy The Value of a Good Credit
Mukherjee, Amit Seru, and Reputation: Evidence from
Vikrant Vig, 2010, Did Credit Card
securitization lead to lax Renegotiations, Journal of
screening? Evidence from Financial Economics, June 2016,
subprime loans, Quarterly 120(3), 644-660.
Journal of Economics 125, 307-
Randomized 362. Econ Talk with
11/13/2017 9 Experiments Ed Leamer
No
11/20/2017 class

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 Cole, Shawn, Martin Kanz, and Dean Karlan, Jonathan Zinman,
Leora Klapper, 2015, 2009, Econometrica, Observing
“Incentivizing calculated Unobservables: Identifying
risktaking: Evidence from an Information Asymmetries With
experiment with commercial a Consumer Credit Field
Standard Errors, bank loan officers,” Journal of Experiment
Binary Outcome Finance 70(2), 537-575.
11/27/2017 10 Variables
Hoai-Luu Q. Nguyen, 2017, Are Chodorow-Reich, Gabriel, and
Credit Markets Still Local? Antonio Falato. 2017. “The Loan
Evidence, from Bank Branch Covenant Channel: How Bank
Common Empirical Closings, Working Paper Health Transmits to the Real
12/4/2017 11 Problems Economy”, Working Paper
Drechsler I, Savov A, Schnabl P, Acharya, V, Schnabl P, Suarez,
Banking on Deposits: Maturity G, Securitization Without Risk
Transformation without Transfer, Journal of Financial
Interest Rate risk, Quarterly Economics, 107(3), March 2013,
Journal of Economics 515-536
12/11/2017 12 Writing Papers

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