AØKK08202U Corporate Finance Theory (F)

Volume 2024/2025
Education

MSc programme in Economics – elective course

The course is part of the MSc programme in Economics, Financial line,  symbolized by ‘F’.

 

This course has changed the exam form and grading scale.

Now it is a 3-hour written exam with written aids and graded with 7-point scale (updated April 2024)

 

The PhD Programme in Economics at the Department of Economics:

  • The course is an elective course with research module. In order to register for the research module and to be able to write the research assignment, the PhD students must contact the study administration AND the lecturer.
Content

Corporate Finance Theory builds on the investigation into firm capital structure from the third-year course Financial Decision Making. We take for granted that course participants have already received a full introduction to the principles of corporate finance.

 

We now go into the details of some of these arguments, by using game-theoretic tools to delve deeper into a variety of topics from the textbook and from articles in academic finance journals.

 

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

 

When looking at financing decisions, we will pay particular attention to how conflicts of interest between managers, shareholders, and creditors can affect firm behavior. 

 

Amongst other issues, we will consider how conflicts between firm insiders and outsiders relate to credit rationing, liquidity management, sponsor reputation, and the ability to honor long-run agreements, while also touching on shareholder activism as a tool for corporate governance.

Learning Outcome

After completing the course the student is expected to be able to:

 

Knowledge:

  • Identify and summarize key theoretical concepts and results from academic articles (intuition).
  • Identify and evaluate key modeling assumptions in an advanced, mathematically-specified theoretical framework (formal modeling).
  • Account for the economic mechanism underlying given theoretical results and discuss their interpretation (intuition).

 

Skills:

  • Assess whether various modeling assumptions are realistic in particular real-life settings (application to case).
  • Derive and analyze formal results within an advanced, mathematically-specified theoretical framework (formal modeling).
  • Argue whether theoretical insights from various articles can shed light on given real-life cases (application to case).

 

Competencies:

  • Compare and contrast theoretical concepts from different articles, and explain the key similarities and differences (intuition).
  • Argue to what extent the formal theoretical results derived in various articles relate to the articles’ more informal interpretation (formal modeling).
  • Identify new, relevant, real-life cases, and evaluate whether theoretical insights from various articles can shed light on these cases (application to cases).

 

The tools and knowledge obtained in this course are of immediate relevance for graduates seeking employment in the business and financial industries. 

The first approximately 25% of course will be based on selected topics from the textbook “The Theory of Corporate Finance” by Jean Tirole.

 

The remaining approximately 75% of the course will be devoted to seven academic articles, supplemented by in-class discussions of related real-world issues in corporate finance.

 

The preliminary reading list is as follows (subject to change). Links to the articles will be posted on the Absalon course homepage.

 

Textbook:

  • Tirole, Jean. The theory of corporate finance. Princeton University Press, 2010.

 

Articles:

  • Edmans and Mann (2019). “Financing Through Asset Sales.” Management Science, 65(7), 3043-3060.
  • Malenko and Malenko (2015). "A theory of LBO activity based on repeated debt-equity conflicts." Journal of Financial Economics, 117(3), 607-627
  • Banal-Estañol, Ottaviani, and Winton (2013). "The Flip Side of Financial Synergies: Coinsurance Versus Risk Contamination." Review of Financial Studies
  • Bayar and 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.
  • Fahn, Merlo, and Wamser (2019), “The Commitment Role of Equity Financing,” Journal of the European Economic Association 17(4), 1232-1260
  • Levit (2019), “Soft shareholder activism,” The Review of Financial Studies, 32(7), 2775-2808.
  • Edmans, Levit, and Schneemeir (2022) “Socially responsible divestment.” European Corporate Governance Institute-Finance Working Paper (823).
As game-theoretic tools and concepts are used systematically throughout the course, it is recommended that students complete “Microeconomics III” in the program of Economics, University of Copenhagen, or a similar introduction to game theory, before following “Corporate Finance Theory”.
Students will also benefit from having followed the course "Financial Decision Making" in the program of Economics, University of Copenhagen, or an equivalent introduction to Finance. Students who have not done so can benefit from following “Financial Decision Making” in parallel with “Corporate Finance Theory”.

Students should have a good understanding of the topics covered in Part 5 (Capital Structure) of the textbook “Corporate Finance” by Jonathan Berk and Peter DeMarzo, or in another book of a similar level.
The teaching activities will consist of lectures where students are expected to actively participate. This will include discussing questions in groups, submitting short answers and voting on multiple choice questions using the Socrative online system, and at times coming to the board.
Schedule:
2 hours lectures 1 to 2 times a week from week 36 to 50 (except week 42).

Schema:
The overall schema for the Master can be seen at KUnet:
MSc in Economics => "Courses and teaching" => "Planning and overview" => "Your timetable"

Timetable and venue:
To see the time and location of lectures please press the link under "Timetable"/​"Se skema" at the right side of this page (E means Autumn).

You can find the similar information partly in English at
https:/​/​skema.ku.dk/​ku2223/​uk/​module.htm
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-E22; [Name of course]”
-Select Report Type: “List – Weekdays”
-Select Period: “Efterår/Autumn”
Press: “ View Timetable”

Please be aware:
- The schedule of the lectures can change without the participants´ acceptance. If this occur, you can see the new schedule in your personal timetable at KUnet, in the app myUCPH and through the links in the right side of this course description and at the link above.
- It is the students´s own responsibility continuously throughout the study to stay informed about their study, their teaching, their schedule, their exams etc. through the curriculum of the study programme, the study pages at KUnet, student messages, the course description, the Digital Exam portal, Absalon, the personal schema at KUnet and myUCPH app etc.
  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 149
  • Exam
  • 15
  • Total
  • 206
Written
Oral
Individual
Collective
Continuous feedback during the course of the semester
Peer feedback (Students give each other feedback)
  • The teaching assistants gives the students individual feedback at their mandatory assignments.
  • The lecturer gives collective oral feedback at the quizzes the students make in the lectures.
Credit
7,5 ECTS
Type of assessment
On-site written exam under invigilation
Type of assessment details
3 hour written exam with written aids
Exam registration requirements

To qualify for the exam the student must no later than the given deadline during the course:

  • hand in and have approved one mandatory assignment.
Aid
Written aids allowed

 

 

Marking scale
7-point grading scale
Censorship form
No external censorship
for the written exam.
Exam period

Exam information:

More information is available in Digital Exam from the middle of the semester. 

More information about examination, rules, aids etc. is available at Master students (UK) and Master students (DK).

Re-exam

Same as the ordinary exam. 

All written aids allowed during the preparation time and the examination.

You must hand in and have approved 1 mandatory assignment for qualifying to the reexam.

 

Reexam info:

More information in Digital Exam in February. In special cases decided by the Department, the re-sit can change to another day and/or time than announced.

More info: Master(UK) and Master (DK).

Criteria for exam assesment

Students are assessed on the extent to which they master the learning outcome for the course.