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FIN 531 Theory of Finance
University of La Verne
Fall 2017
Research Paper Assignment
As part of the course requirements for successful completion of FIN 531, you will need to
write and present a scholarly literature review on a relevant topic in finance. A list of
potential topics will be provided by the instructor. You are not limited to the topics
recommended by the instructor; however, your topic must be approved by the instructor
before you begin.
The paper should reference scholarly research on the selected topic of your choice. You
may use online and other non-peer-reviewed resources if necessary; however, at least
10 references must come from peer-reviewed journal articles. Major journals in finance
include Journal of Finance, Review of Financial Studies, Journal of Financial Economics,
Journal of Financial and Quantitative Analysis, Journal and Banking and Finance,
Financial Analysts Journal, Financial Management, and Journal of Corporate Finance,
among many others. Online resources such as Google Scholar and those provided
through the University library will provide you with access to many of these articles. The
completed research paper should be at least 15 pages in length, not including the
references, and be typed using 12-point, double-spaced font.
It is up to you to decide the exact structure of the research paper; however, it should
contain an abstract and a conclusion. The structure of the body of the paper is up to you,
but the paper should cover the following topics:
1. Abstract: An abstract should include a brief summary of the theories you discuss, the
current status of the empirical literature on the subject, and the potential avenues for
future research. The abstract should be limited to approximately one page, doublespaced.
2. Review of major theories: You should outline the major relevant theories in the
literature regarding your topic. If you wish, you may devote subsections to each
competing/complementary theory. For each theory, you should be sure to discuss
the assumptions (if any), outline the theoretical model, and discuss the models
implications. You may also discuss how to test each theory and what empirical
evidence would be considered supporting or rejecting each theory. You should be
sure to properly cite all theories and empirical research, as well as any direct quotes
from other sources.
3. Summary of the major empirical findings: You should also outline the major empirical
findings that test the theories you outline in the paper. Each theory will have its own
empirical predictions, testing samples, and testing methodologies, and the same
theory is often tested in many different ways. You should review the major empirical
literature and discuss how each theory is tested empirically, report the findings of
major research, and discuss the implications of the research for the current validity of
the underlying theories. Again, you should be sure to cite all the relevant articles to
which you reference.
4. Future Research Prospects: As a final analysis of your literature review, you should
attempt to describe how researchers may add to the literature in the future through
both theoretical and empirical developments. Based on your analysis of the current
status of the theoretical and empirical literature, you should summarize what you
think are the most relevant ways to expand current literature in order to gain further
insight on an issue in finance. Even if the research avenue you suggest is not
possible at this time, due to data availability, or any other reasons, you may still
discuss how the issue may be tested and why it would add to the literature on the
issue. If possible, discuss any empirical testing strategies you might employ and
present and interpret the hypotheses that such a strategy would test.
5. Conclusion: In the conclusion, you should again briefly summarize the theories you
identify and discuss in the paper, the status of the related empirical evidence on the
topic, and what avenues you identify for future research on the topic.
6. References: You should include a references section at the end of the paper with
complete references to the works of others to which you have referred in the paper.
In the references section be sure to include all relevant information, such as the
author’s name, year of publication, title of article, publishing journal, and journal
volume and page number. For Example:
Hippler, W.J., and Hassan, M.K. 2015. The Impact of Macroeconomic and Financial
Stress on the U.S. Financial Sector. Journal of Financial Stability 21. 61 – 80.
Be sure to also cite references in the text as well using the author’s last name and
the year of publication. For example, “Hippler (2016) outlines a theoretical model…”.
Also include the page number if you are using a direct quote.
As a final fulfillment of the research component of this course, you should prepare a
presentation of your research paper for presentation on the last day of class. You should
design a PowerPoint presentation that summarizes what you report in the paper. The
presentation should be approximately 20 minutes in length.
Paper Due Dates:
Week 3 (10/11)
Paper Topic Due. You should send in your topic by e-mail for
approval no later than this date.
Week 5 (10/25)
Paper Outline Due (1-3 pages). You should turn in an outline of
the paper. The outline should present a more detailed description
of the theories and evidence you plan to discuss in the paper and
include a reference list of the research papers to which you may
refer in the final version of the paper.
Week 9 (11/29)
In-class presentations will take place
Week 10 (12/6)
Final Paper Due. You should turn in the final version of your paper
by class time. You should also submit an electronic copy via email.
Capital structure theory, and evidence
1. MM (Modigliani-Miller) theory
Zero taxes
Corporate taxes
2. Trade-off theory
the benefit of debt VS bankruptcy costs.
Optimal capital structure.
Signaling theory(information symmetry)
Investors could predict the performance of firm base on managers behavior.
Pecking order
The source of financing including internal raising funds, debt and equity.
Windows of opportunity
Managers try to take advantage of “time the market” when issuing securities.
For example, issuing more debt when the interest rate is low.
Empirical Evidence

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