AØKA08095U  Corporate Finance Theory

Volume 2013/2014
Education
MSc in Economics
Content

Some of the most central issues in Finance relate to the financing decisions of firms, in particular the relative use of bond and equity financing. Some key aspects of this capital structure decision relate to the tax advantages of debt, costly bankruptcy, risk management and hedging, using the capital structure to control managers, and signaling to the market using the capital structure. We also consider the market for corporate control, with leveraged buyouts as well as mergers and acquisitions.

Learning Outcome

This course advances the third year course's investigation into the capital structure. We take for granted that the course participants have already received a full introduction to the principles of corporate finance. We choose instead to go deeper into particular details of some of the arguments. To accomplish this, we go beyond the textbook and base the course on classic and new articles from academic Finance journals. The tools and knowledge obtained in this course are of immediate relevance for graduates seeking employment in the business and financial industries.

The final exam tests the students' specific and general knowledge of the aforementioned aspects of Corporate Finance theory, emphasizing three abilities:

  1. The ability to readily explain and discuss key theoretical concepts and results from academic articles, as well as their interpretation,
  2. The ability to carefully derive and analyze results within an advanced, mathematically specified theoretical model,
  3. The ability to apply the most relevant theoretical apparatus to analyze a given, new case-based problem.
In order to pass the course, the student must show satisfactory performance in all three areas.
Syllabus:

The plan for the Fall term 2013 is to read the following seven articles. Articles typically take about one week to cover. The coverage is supplemented by in-class discussions of real-world events involving corporate finance issues.

 

  1. Albert Banal-Estañol, Marco Ottaviani and Andrew Winton (2011), “Separate or Joint Financing? Coinsurance, Risk Contamination, and Optimal Conglomeration with Bankruptcy Costs,” manuscript, Universitat Pompeu Fabra.
  2. Heitor Almeida, Murillo Campello and Dirk Hackbarth (2011), “Liquidity Mergers,” Journal of Financial Economics, 102(3), 526–558.
  3. Paul Povel and Rajdeep Singh (2010): “Stapled Finance,” Journal of Finance 65(3), 927–953.
  4. Marc Martos-Vila, Matthew Rhodes-Kropf and Jarrad Harford (2012), “Financial vs. Strategic Buyers,” Harvard Business School Working Paper 12-098.
  5. Onur Bayar and Thomas J. Chemmanur (2011), “IPOs versus Acquisitions and the Valuation Premium Puzzle: A Theory of Exit Choice by Entrepreneurs and Venture Capitalists,” Journal of Financial and Quantitative Analysis 46(6), 1755–1793.
  6. Alex Edmans and Qi Liu (2011): “Inside Debt,” Review of Finance, 15, 75–102.
  7. Peter M. DeMarzo, Dmitry Livdan and Alexei Tchistyi (2011), “Risking Other People’s Money: Gambling, Limited Liability, and Optimal Incentives,” Stanford and UC Berkeley mimeo.
The third year course on Corporate Finance and Incentives, or an equivalent elaborate introduction to Finance.
4 hours of lectures per week for 7 weeks.
Credit
5 ECTS
Type of assessment
Continuous assessment
The final exam consists of two assignments, graded on a pass/fail basis. The default language is English, but students have the option to answer in Danish.
Aid
All aids allowed
Marking scale
passed/not passed
Censorship form
No external censorship
Exam period
Will be updated before the start of the semester
Re-exam
Same as ordinary. But if only a few students have registered for the re-exam, the exam might change to an oral exams with a synopsis to be handed in. This means that the examination date also will change.
Criteria for exam assesment
The Student must in a satisfactory way demonstrate that he/she has mastered the learning outcome of the course.
  • Category
  • Hours
  • Lectures
  • 28
  • Preparation
  • 58
  • Exam
  • 50
  • Total
  • 136