Corporate Finance

This version:

The 2nd Midterm Exam is postponed to Monday 08.05.2017

Course Description

Methods of capital budgeting and corporate financial decision-making; valuation techniques, market efficiency, capital structure, dividend policy, cost of capital, portfolio analysis and the Miller-Modiglian principle are incorporated into the analysis; financial analysis under conditions of certainty and uncertainty.

Course Objectives

Students will be enabled to identify the key role played by (asymmetric) information and incentives in general, and by capital, liquidity, value of collateral, and external monitoring specifically for corporate financing and its interdependence with corporate governance.

Students will learn to apply the tools of economic modelling to the key concepts of corporate finance, i.e. the issuance of securities by firms: equity (shares of stock) and debt (bonds, bank loans); payout policies (dividends, share repurchases, retained earnings); and corporate governance and managerial incentives (CEO pay packages, role of stock markets, bankers, venture capitalists, competition and takeovers in the monitoring of firms).

Course Materials

Required:

The course will follow the textbook: Tirole, Jean, 2006, The Theory of Corporate Finance, Princeton University Press.
Available from bookdepository and amazon

Course Requirements:

Students must have passed Principles of Finance and its co-requisites Principles of Microeconomics and Principles of Macroeconomics before enrolling in this course.

Students must read the corresponding chapters of the textbook before each session. Reading the economic and political press will be helpful.

I recommend that you try to solve the end of chapter problems in preparation and review of each class session.

Instructor Information:

Prof. Dr. Dennis A. V. Dittrich
dennis.dittrich@touroberlin.de
http://economicscience.net

My office hours are 24 hours a day via email. For meetings in my office appointments can be arranged through the my webpage at: http://economicscience.net/content/book-appointment.

Updated information, links to the literature, additional materials, etc. can be found on my webpage as well.

Grading Guidelines:

Grading ComponentWeight
Quizzes10%
Midterm Exam 125%
Midterm Exam 225%
Final Examination40%

If the final exam is better than one or both of the midterm exams the corresponding midterm exam grade(s) will be replaced by the grade of the final exam.

Workload

A typical 3 credit course requires 150 hours of your time. The table below identifies how I expect those 150 hours will be allocated. While you do not receive direct marks for reading, reading will affect your class participation (your ability to participate in class discussions and activities) and your final exam mark. While some weeks have more readings than others, you should be able to read the required reading in an average of less than 4 hours per week.

ActivityTime
Class Time (3 hours / week)45 hours
Reading (4 hours / week)60 hours
Preparation and Review (3 hours / week)45 hours

Topics and Reading Assignments

Session 1 (13.02.)

Introduction

Session 2 (16.02.)

Corporate Governance (Ch. 1)

Alex Verkhivker, Jan 23, 2017, When shareholders aren’t watching, managers misbehave, Chicago Booth Review

Session 3 (20.02.)

Corporate Finance: Stylized Facts (Ch. 2)

Session 4 (23.02.)

Corporate Finance: Stylized Facts (Ch. 2)

Session 5 (27.02.)

Outside Financing Capacity (Ch. 3)

Session 6 (2.03.)

Outside Financing Capacity (Ch. 3)

Session 7 (6.03.)

Outside Financing Capacity (Ch. 3)

Session 8 (9.03.)

Determinants of Borrowing Capacity (Ch. 4)

Session 9 (13.03.)

Determinants of Borrowing Capacity (Ch. 4)

Session 10 (16.03.)

Midterm Exam 1

Session 11 (20.03.)

Liquidity and Risk Management, Cash Flow, and Long-Term Finance (Ch. 5)

Session 12 (23.03.)

Liquidity and Risk Management, Cash Flow, and Long-Term Finance (Ch. 5)

Session 13 (27.03.)

Liquidity and Risk Management, Cash Flow, and Long-Term Finance (Ch. 5)

Corporate Financing under Asymmetric Information (Ch. 6)

Session 14 (30.03.)

Corporate Financing under Asymmetric Information (Ch. 6)

Session 15 (3.04.)

Corporate Financing under Asymmetric Information (Ch. 6)

Investors: Entry, Exit, and Speculation (Ch. 8)

Session 16 (6.04.)

Corporate Financing under Asymmetric Information (Ch. 6)

Investors: Entry, Exit, and Speculation (Ch. 8)

Session 17 (20.04.)

Investors: Entry, Exit, and Speculation (Ch. 8)

Lending Relationships and Investor Activism (Ch. 9)

Session 18 (24.04.)

Investors: Entry, Exit, and Speculation (Ch. 8)

Lending Relationships and Investor Activism (Ch. 9)

Session 19 (27.04.)

Midterm Exam 2 **Postponed to Monday 08.05. **

We do not meet on Thursday, April 27th.

Session 20 (4.05.)

Investors: Entry, Exit, and Speculation (Ch. 8)

Session 21 (8.05.)

Midterm Exam 2

Session 22 (11.05.)

Control Rights and Corporate Governance (Ch. 10)

Session 23 (15.05.)

Control Rights and Corporate Governance (Ch. 10)

Takeovers (Ch. 11)

Session 24 (18.05.)

Takeovers (Ch. 11)

Session 25 (22.05.)

Takeovers (Ch. 11)

Consumer Liquidity Demand (Ch. 12)

Session 26 (29.05.)

Takeovers (Ch. 11)

Consumer Liquidity Demand (Ch. 12)

Session 27 (8.06.)

Review

Session 28 (12.6.)

Final

Topics and reading assignments are subject to changes.

Class time and problem sets

We will discuss selected problems in class.

Additional materials can be found for download in a dropbox folder: here.

If you do not have a Dropbox account yet: Get one for free!