Lecture 1: Introduction

The Modigliani-Miller Theorem

Chapters 1 and 2
 

Lecture 2: Moral Hazard (Short Term)

1. The fixed-investment model

a. Credit rationing

b. Sensitivity of investment to cash flow

c .Debt overhang

2. The continuous-investment model

a. The equity multiplier (borrowing capacity)

b. Collateral (salvage values) and financial structure

Chapter 3 - 3.1, 3.2 (3.2.1, 3.2.2, 3.2.7), 3.3, 3.4
 

Lecture 3: Verifiability of Income

1. Verifiable income

- The principle of maximal insider incentives

2. Semiverifiable income

- Audits and bankruptcy

3. Nonverifiable income

- The threat of termination

Chapter 3 - 3.5
 

Lecture 4: Moral Hazard (Term Structure)

Liquidity Shocks in the Fixed-Investment Model

a. Term Structure of Cash-Rich Firms

b. Credit Lines for Cash-Poor Firms

Chapter 5 - 5.1, 5.2 (5.2.1, 5.2.2, 5.2.3)
 

Lecture 5: Adverse Selection

1. Privately-Known Prospects Model

2. Pecking-Order Hypothesis

3. Extensions: Dissipative Signals

Chapter 6 - 6.1, 6.2 (6.2.1, 6.2.2 (only Application 3)), 6.3 (only Introduction).

Lecture 6: Control Rights and Corporate Governance

1. A single control right

2. Multiple control rights

3. Contingent rights

4. Noncontractible specific investments

Chapter 10 - 10.1, 10.2
 

Lecture 7: Banks and Consumer Liquidity Demand

1. The Diamond and Dybvig Model

2. The Jacklin critique

3. Runs

Chapter 12 - 12.1, 12.2 (12.2.1,12.2.2, 12.2.3, 12.2.4), 12.3 (12.3.1)
 

Lecture 8: Balance-Sheet Channel

1. Moral hazard

2. Adverse selection

Chapter 13 - 13.1, 13.2

Lecture 9: Lending Channel

1. A "Double-Decker" model

2. Fixed investment size

3. Variable investment size

Chapter 13 - 13.3

Lecture 10: Development, Inequality and Cycles

1. Dynamic complementarities

2. Dynamic substitutabilities

3. The Kiyotaki-Moore model

Chapters 13 - 13.4, 13.5; 14 - 14.3