May 28, 2012 ... Corporate Finance builds on the Finance I course taught last winter. ... Jaffe/
Westerfield/Ross) we will be using the text by Ivo Welch for the ...
EUSP Economics Department – Spring 2012 Corporate Finance and Empirical Accounting Research
Niels Kroner Introduction Corporate Finance builds on the Finance I course taught last winter. Due to visa problems, I can now only be in St Petersburg on four days, so the course will be somewhat compressed. • Monday, May 28th: investment decisions and funding decisions • Tuesday and Wednesday, May 29th and 30th: valuation, mergers and acquisitions • Thursday, May 31st: financial reporting – theory and practice While there are several established textbooks (e.g., Brealey/Myers, Jaffe/Westerfield/Ross) we will be using the text by Ivo Welch for the simple reason that it is quite up to date and available for free online (http://book.ivo-‐ welch.info/). Grading for the course is a mix of a final exam (50%), short homework exercises due each day (25%) and classroom participation (25%). I expect you to attend all classes as the discussion forms an important part of your learning experience. Office hours are immediately after class; in addition you can reach me via email (
[email protected]) and on Skype (niels.kroner). The plan is to spend the four days of the module as follows: Day 1 (Monday, May 28th, 10am-‐12:50pm): Evaluating investment opportunities • A review of valuation principles from Finance I o The firm in an asset / liability view o Net present value o Perpetuities and annuities • A comparison of investment rules • Value drivers • CAPM Readings: Welch, chapter 13; Koller/Goedhart/Wessels chapter 7-‐8 Optional: Welch, chapters 1-‐9, Mishkin, chapter 6; Ross/Westerfield/Jaffe, chapters 9-‐12, Jones, chapters 4 and 7
Day 2 (Tuesday): Funding choices and distribution of cash • Financing structures • Financing instruments o Equity instruments o Secured/unsecured debt instruments and asset-‐backed finance o Other funding sources • Risk factors in financing choices • Uses of free cash • Dividends vs. buybacks • Valuation implications of funding choices and cash distribution • Earnings and cash flows; operating and non-‐operating items • Value drivers Readings: Welch chapter 16-‐18 and 21; Minsky, Hyman: Stabilizing and Unstable Economy, New York: McGraw Hill 2008 (1st published 1986), chapter 9; Arnott, Robert D., and Clifford S. Asness: Surprise! Higher Dividends = Higher Earnings Growth, Financial Analysts Journal 2003, p. 70-‐87; Koller/Goedhart/Wessels chapter 2-‐6, 32 Optional: DeAngelo, Harry, Linda DeAngelo and Douglas J. Skinner, Corporate Payout Policy, in: Foundations and Trends in Finance 3, 2008, p. 95-‐287 Day 3 (Wednesday): Valuation in practice, and Mergers & Acquisitions • Valuation frameworks • Real options • Value creation through inorganic growth • Investment Banking • Private Equity • Non-‐value creating motives for mergers and acquisitions • Empirical evidence • Anti-‐trust considerations Readings: Bild, Magnus, Andy Cosh, Paul Guest and Mikael Runsten, Do Takeovers Create Value? A Residual Income Approach on U.K. Data, ESRC working paper 252; Campa, Jose Manuel, and Ignacio Hernando, Shareholder Value Creation in European M&A, in: European Financial Management, Vol. 10, No. 1, 2004, 47–81; Acharya, Viral V., Moritz Hahn and Conor Kehoe, Corporate Governance and Value Creation: Evidence from Private Equity, working paper 2010; Jensen, Michael, Eclipse of the Public Corporation, in Harvard Business Review 1989 Optional: Cartwright, Susan, and Richard Schoenberg, 30 Years of Mergers and Acquisitions Research. Recent Advances and Future Opportunities, in: British Journal of Management, Volume 17 Issue S1, Pages S1-‐S5, 2006
Day 4 (Thursday): Accounting and Corporate Finance; Introduction to Financial Statement Analysis • Information asymmetry and the reason for mandatory financial disclosure • Accounting quality • Empirical evidence • Financial Statement analysis -‐ issues o Revenue recognition o Impairment o Forensic accounting • Sino-‐Forest case Readings: Beaver, William: Financial reporting – an accounting revolution, Englewood Cliffs: Prentice-‐Hall, 3rd edition, 1998; Sino-‐Forest case study materials (on course website) Optional: Dechow, Patricia, Weili Ge, Chad R. Larson, Richard G. Sloan, Predicting Material Accounting Misstatements, in: Contemporary Accounting Research 28 (2011), p. 17-‐82; Coffee, John C., What Caused Enron?: A Capsule Social and Economic History of the 1990's, Columbia Law and Economics Working Paper No. 214; Michael Jones, Creative Accounting, Fraud and International Accounting Scandals, West Sussex: John Wiley 2011, chapters 1-‐5, 10, 13; Goncharov, Igor, and Jochen Zimmermann, Supply and Demand of Accounting Information: The Case of Bank Financing in Russia, working paper 2006. Literature • Mishkin, Frederic: The Economics of Money, Banking and Financial Markets, Global Edition, 9th edition, Boston et al.: Pearson, 2010. • Ross, Stephen A., Randolph W. Westerfield, Jeffrey Jaffe: Corporate Finance, any edition, Boston et al.: McGraw-‐Hill Irwin • Brealey, Richard A., and Stewart C. Myers: Principles of Corporate Finance, any edition • Jones, Chris: Financial Economics, Abingdon: Routledge, 2008 • Koller, Tim, Marc Goedhart and David Wessels: Valuation: Measuring and Managing the Value of Companies, 5th Edition