776393

Course
Corporate Finance

Faculty

Course Coordinator
Ken L. Bechmann

Prerequisites

The course is compulsory for the Ph.D. students at the Department of Finance but is also open for other participants that have a basic knowledge of finance theory at the level of a Master's degree in Finance. In addition, a basic knowledge of game theory and econometrics will also be taken as given.

Aim

To provide students that are in the early stages of their Ph.D. studies with a firm knowledge and understanding of core topics in corporate finance. The course will be focusing on classical papers as well as more recent contributions (theoretical and empirical). The course will also discuss research dissemination including various types of presentations and the publication process.

At the end of the course, students are expected to be able to:
-    Explain when and how taxes, agency problems, and asymmetric information affect the optimal capital structure, payout policy, and firm values,
-    Explain the likely implications of agency problems and asymmetric information in other issues including IPOs, lending, equity issuance, ownership structure, investment decisions, risk management, and informationally efficient financial markets,
-    Provide examples of models examining issues like payout policy and capital structure in a dynamic setup,
-    Present and discuss research as it is done at conferences, seminars, and in referee reports.
 

Course content

The course is divided into two parts. Part 1 consists of five afternoon sessions (12:35-16:05) and Part 2 consists of eight full-days with lectures and exercises starting at 9.00 and ending at 16.00 on selected Fridays at CBS. Some of the lectures will be held jointly with the Corporate Finance course at the elite master program in Advanced Economics and Finance also at CBS. These selected joint lectures are an integrated part of the following schedule.

Part 1 (lectures 1-5): Basic corporate finance (“need to know!”) based on a world famous text book on corporate finance: Brealey/Myers/Allen (BMA): “Principles of Corporate Finance”. This part also contains an introduction to later selected topics. Participants who can document a knowledge corresponding to the content of Part 1 can be excused from this part, but this needs to be approved by Ken L. Bechmann.  

Part 2 (lectures 6-13): Covers different core topics in corporate finance based on classical articles and more recent papers. During the full-day lectures there will be additional lectures from 10.00 to 13.30 offered only to Ph.D. students. These will contain a deeper analysis and discussions of research in the different topics (theoretical as well as empirical).

All lectures in Part 2 will be based on selected articles (the numbers refer to the list of articles given in the Course readings below). All material will be handed out electronically except for the suggested chapters in the textbook “Theoretical Foundations of Corporate Finance” by João Amaro de Matos (Oxford University Press, 2001) which is supplementary reading.

Teaching style

Students are required to participate actively during the course. There will be student presentation assignments, discussions, and four (or five) mandatory exercises.
 

Lecture plan

Lecture

(date, time)

Topics

Exercises

Main literature

7

(23/10, 9-16)

Introduction; Writing papers in Corporate Finance; Classical Modigliani-Miller and the effect of taxation – I

 

1-3

8

(30/10, 9-16)

Classical Modigliani-Miller and

the effect of taxation – II

Stiglitz*

4-7

9

(3/11, 9-15)

Agency problems and asymmetric information – I

 

8-11

10

(13/11, 9-16)

Agency problems and asymmetric information – II

Ross*

12-15

11

(18/11, 9-16)

Student presentations of classical papers and empirical evidence on payout policy

 

16-19

12

(27/11, 9-16)

Other implications of asymmetric information

MyersMajluf*

20-23

13

(4/12, 9-16)

Conflicts of interest and payout policy

 

24-27

14

(11/12, 9-16)

Dynamic capital structure; Real options; concluding remarks

Bechmann*

28-29

Notes: Named exercises will be distributed later. Exercises with a * will be mandatory exercises to be handed in two days before the lecture. One more mandatory exercise might come later.

Learning objectives

Exam

The course will end with a final oral exam. It is expected that the students participate in all eight compulsory days. If a student fails to participate in one day (and only one day), the student can still take the final exam if the student hands in an essay discussing the main issues covered during this day (details will follow if relevant).

The four (or five) mandatory exercises mentioned above also have to be handed in and passed in order to participate in the final exam. If a student fails in one or more of the exercises, the student needs to hand in a solution to an additional set of exercise and to pass these in order to be able to participate in the final exam.

Other

Start date
23/10/2015

End date
11/12/2015

Level
PhD

ECTS
7,5

Language
English

Course Literature
Tentative list of readings:Books:Brealey, Richard A, Stewart C. Myers and Franklin Allen (2011), Principles of Corporate Finance, 10th edition, McGraw-Hill (will be changed to 11th edition, if relevant).Amaro de Matos, João (2001), Theoretical Foundations of Corporate Finance, Oxford University Press.Papers:1. Bechmann, Ken L. and Toke Hjortshøj (2009), “Disclosed Values of Option-Based Compensation – Incompetence, Deliberate Underreporting or the Use of Expected Option Life?”, European Accounting Review, 18, 475-513.2. Stiglitz, Joseph (1974), “On the Irrelevance of Corporate Financial Policy”, The American Economic Review, 47, 851-866.3. Miller, Merton H. (1977), “Debt and Taxes”, Journal of Finance, 32, 261-275.4. DeAngelo, Harry and Ronald Masulis (1980), “Optimal Capital Structure under Corporate and Personal Taxation”, Journal of Financial Economics, 8, 3-29.5. Hodder, James E. and Lemma W. Cuny (1995), “International Capital Structure Equilibrium”, Journal of Finance, 45, 1495-1516.6. Berens, James I. and Charles J. Cuny (1995), “The Capital Structure Puzzle Revisited”, Review of Financial Studies, 8, 1185-1208.7. Graham, John R. (2000), “How Big Are the Tax Benefits of Debt?”, Journal of Finance, 55, 1901-1941.8. Bechmann, Ken L. and Johannes Raaballe (2007), “The Differences Between Stock Splits and Stock Dividends – Evidence on the Retained Earnings Hypothesis”, Journal of Business, Finance, and Accounting, 34, 574-604.9. Myers, Stewart (1977), “The Determinants of Corporate Borrowing”, Journal of Financial Economics, 5, 147-175.10. Jensen, Michael and William Meckling (1976), “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics, 3, 305-360.11. Ross, Stephen (1977), “The Determination of Financial Structure: The Incentive-Signalling Approach”, Bell Journal of Economics, 8, 23-40.12. Harris, Milton and Arthur Raviv (1996), “The Capital Budgeting Process: Incentives and Information”, Journal of Finance, 51, 1139-1173.13. Fama, Eugene F. and Kenneth R. French (2001), “Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?”, Journal of Financial Economics, 60, 3-43.14. Leland, Hayne and David Pyle (1977), “Informational Asymmetries, Financial Structure and Financial Intermediation”, Journal of Finance, 32, 371-387.15. Myers, Stewart C. and Nicholas S. Majluf (1984), “Corporate Financing and Investment Decisions when Firms have Information that Investors do not have”, Journal of Financial Economics, 13, 187-221.16. Grullon, Gustavo and Roni Michaely (2002), “Dividends, Share Repurchases, and the Substitution Hypothesis”, Journal of Finance, 57, 1649-1684.17. Skinner (2008)17. Bechmann, Ken L. and Johannes Raaballe (2011), “Payout to Shareholders – What Do We Mean and How to Measure It?”, Working paper.18. Rock, Kevin (1986), “Why new issues are underpriced”, Journal of Financial Economics, 15, 186-212.19. Frank, Murray Z. and Vidhan K. Goyal (2003), “Testing the pecking order theory of capital structure”, Journal of Financial Economics, 67, 217-248.20. Eije, Henk von and William L. Megginson (2008), “Dividends and share repurchases in the European Union”, Journal of Financial Economics, 89, 347-374.21. Lucas, Deborah J. and Robert L. McDonald (1998), “Shareholder Heterogeneity, Adverse Selection, and Payout Policy”, Journal of Financial and Quantitative Analysis, 33, 233- 253.22. Stiglitz, Joseph and Andrew Weiss (1981), “Credit Rationing in Markets with Imperfect Information”, The American Economic Review, 71, 393-410.23. Grossman, Sanford J. and Joseph Stiglitz (1980), “On the Impossibility of Informationally Efficient Markets”, American Economic Review, 70, 393-408.24. Brennan, Michael J. and Anjan V. Thakor (1990), “Shareholder Preferences and Dividend Policy”, Journal of Finance, 45, 993-1019.25. Allen, Franklin, Antonio E. Bernardo, Ivo Welch (2000), “A Theory of Dividends Based on Tax Clienteles”, Journal of Finance, 55, 2499-2536.26. Miller, Merton H. and Kevin Rock (1985), “Dividend Policy under Asymmetric Information”, Journal of Finance, 40, 1031-1051.27. Bechmann, Ken L. and Johannes Raaballe (2010), “Taxable Cash Dividends – A Money-Burning Signal”, European Journal of Finance, 16, 1-26.28. Dixit, Avinash and Robert Pindyck (1994), Investment under Uncertainty, Princeton University Press, selected chapters.29. Leland, Hayne E. (1994), “Corporate Debt Value, Bond Covenants, and Optimal Capital Structure,” Journal of Finance, 49, 1213-1252.

Fee
9,750

Minimum number of participants
6

Maximum number of participants
10

Location

Please see Lecture plan.

Solbjerg Plads 3, 2000 Frederiksberg
Room A5.32

Contact information

Ken L. Bechmann - kb.fi@cbs.dk
Bente S. Ramovic - bsr.research@cbs.dk

Registration deadline
02/10/2015

Top