Ass.-Prof. Dr. Axel Kind Corporate Finance Division University of Basel Fall 2010 Syllabus Advanced Corporate Finance (Part 2) Course-Nr. 10613 1 General Description The course Advanced Corporate Finance consists of two parts: Part 1: Investment Analysis and Valuation (lectured by Pascal Gantenbein), Part 2: Capital Market Models (lectured by Axel Kind). The second part of the course Advanced Corporate Finance aims at giving students insights about central questions in modern corporate finance (both in the theoretical and empirical literature). Given the mere size of the corporate-finance literature, the topics covered in class unavoidably represent a selection among current issues. 2 Learning Goals The course will provide you with a sound theoretical and empirical graduate-level knowledge of basic issues in corporate finance, which might both increase your curiosity for research topics in this field and sharpen your critical eye with respect to corporate-finance issues in the industry. Upon successful completion of the course, you will be familiar both with the terminology and the most important topics in modern corporate finance and corporate governance. 3 Time and Place The course takes place on Mondays from 16:15 to 20.00 in the WWZ Auditorium: 1. Part: 20.09.2010-25.10.2010, 2. Part: 01.11.2010-06.12.2010. 1
4 Credit Points Advanced Corporate Finance is a four-academic-hour course. Six credit points are awarded upon successful completion of the course. The grading is based on a written final exam to be held on December 13, 2010. The final exam will consist of two 50-minute sections, each related to one of the two parts of the course. The exam will be closed-book, but you may bring to the exam a simple calculator and two A4 cheat sheets (one for the first part and one for the second part of the course) writable/printable on both sides (all in all four pages). 5 Readings Most topics of the course are based on the following book: Financial Theory and Corporate Policy by T.E. Copeland, J.F. Weston and K. Shastri, Pearson Addison Weasley, 2004 (4th edition). Additional course-related readings consist of academic papers and selected chapters from the following books: Mathematical Techniques in Finance: Tools for Incomplete Markets by Ales Cerný, Princeton University Press, 2009 (2nd edition). The Theory of Corporate Finance by Jean Tirole, Princeton University Press, 2006. Theoretical Foundations of Corporate Finance von Joao Amaro de Matos, Princeton University Press, 2001. Any additional reading material (including slides and journal articles) will be made available on the course webpage: (http://wwz.unibas.ch/corporate-finance/lehre /advanced-corporate-finance-hs-2010/abteilung/cofi/). 6 Outline and Topics The following table provides a list of topics covered by the course together with an approximate time schedule. 2
Outline for the second part of the course Advanced Corporate Finance: Week Date Topic 1 01.11.10 Introduction, Valuation (Certainty and Uncertainty) 2 08.11.10 Valuation of Flexibility (Real Options) and Financial Engineering 3 15.11.10 Corporate Financing and Modigliani & Miller Theorems 4 22.11.10 Corporate Governance 5 29.11.10 Optimal Financing Policy and Behavioral Corporate Finance 6 06.12.10 Open (Discussion, Review, Buffer) 7 13.12.10 Written exam 7 Detailed Literature (*) indicates articles or book chapters that are strongly linked to the topics presented in class and should be read by students to integrate the explanations provided in class. 1. Introduction Copeland, Weston and Shastri: Chapter 1 (*) Introduction: Capital Markets, Consumption and Investment (p. 3-12) Chapter 3 (*) The Theory of Choice: Utility Theory given Uncertainty (p. 45-52) de Matos: Chapter 1, Valuation (p. 3-17) 2. Valuation (Certainty, Uncertainty, and Flexibility) Copeland, Weston and Shastri: Chapter 3 (*) The Theory of Choice: Utility Theory given Uncertainty (p. 52-59) Chapter 4 State Preference Theory (p. 75-92) Chapter 7 (*) Pricing Contingent Claims: Option Pricing Theory and Evidence (p. 199-206 and 217-237) Chapter 9 (*) Multiperiod Capital Budgeting under Uncertainty: Real Options Analysis (p. 305-321) Cerný: Chapter 1 (*) The Simplest Model of Financial Markets (p. 1-19) Chapter 2 (*) Arbitrage and Pricing in the One-Period Model (p. 25-47) Chapter 3 (*) Risk and Return in the One-Period Model (p. 55-69) 3
de Matos: Chapter 1, Valuation (p. 18-37) 3. Corporate Financing Copeland, Weston and Shastri: Chapter 15 Capital Structure and the Cost of Capital: Theory and Evidence (p. 617-625) Tirole: Chapter 2 Corporate Financing: Some Stylized Facts (p. 75-87) 4. Modigliani & Miller Theorems and Optimal Financing Policy Copeland, Weston and Shastri: Chapter 15 (*) Capital Structure and the Cost of Capital: Theory and Evidence (p. 557-573) de Matos: Chapter 2, Optimal Capital Structure (p. 39-58) 5. Corporate Governance Tirole: Chapter 1 (*) Corporate Governance (p. 15-56) Kind and Schläpfer (2010): Is a CEO Turnover Good or Bad News?, Working Paper, University of Basel (*) Volonte (2007): Wie hat sich die Struktur des Verwaltungsrates schweizerischer Firmen in den beiden letzten Jahrzehnten verändert?, Master Thesis, University of Basel Bertrand and Mullainathan (1999): Is there Discretion in Wage Setting? A Test Using Takeover Legislation, RAND Journal of Economics, 30(3) (*) Blanchard, Lopez de Silanes and Shleifer (1994): What do Firms do with Cash Windfalls?, Journal of Financial Economics, 36(3) (*) Hall and Liebman (1998): Are CEOs really paid like Bureaucrats?, Quarterly Journal of Economics, 63(3) (*) Huson, Parrino and Starks (2001): Internal Monitoring Mechanisms and CEO Turnover: A Long-Term Perspective, Journal of Finance, 56(6) (*) Jensen (1986): Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, American Economic Review, 76(2) (*) Shleifer and Vishny (1997): A Survey of Corporate Governance, Journal of Finance, 52(2) (*) Yermack (2006): Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns, Journal of Financial Economics, 80(1) 4
6. Behavioral Corporate Finance Barberis and Thaler (2003): A Survey of Behavioral Finance, In G. M. Constantinides, M. Harris, and R. Stulz (Eds.): Handbook of the Economics of Finance, 2 nd edition. Elsevier (p. 1107-1112) (*) Baker, Ruback, and Wurgler (2004): Behavioral Corporate Finance: A Survey, NYU Working Paper No. FIN-04-024 (*) Baker, Stein and Wurgler (2003): When Does the Market Matter? Stock Prices and the Investment of Equity Dependent Firms, Quarterly Journal of Economics, 118(3) (*) Baker and Wurgler (2000): The Equity Share in New Issues and Aggregate Stock Returns, Journal of Finance, 55(5) (*) Baker and Wurgler (2002): A Catering Theory of Dividends, Working Paper Harvard University (*) Baker and Wurgler (2002): Market Timing and Capital Structure, Journal of Finance, 57(1) (*) 8 Contact Information Ass.-Prof. Dr. Axel Kind Corporate Finance Division, WWZ Office 5.35 Peter Merian-Weg 6 CH-4002 Basel Tel: +41 61 267 33 10 Internet: www.wwz.unibas.ch/cofi Email: axel.kind@unibas.ch Yves Schläpfer Corporate Finance Division, WWZ Office 5.34 Peter Merian-Weg 6 CH-4002 Basel Tel: +41 61 267 33 07 Internet: www.wwz.unibas.ch/cofi Email: yves.schlaepfer@unibas.ch 5