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EK Corporate Finance

Prof. Loranth

General Information

The first part of the course is introduction into the field of Corporate Finance. The aim of the course is to develop a framework to think about how firms finance their activities. We will go back and forth between developing theories and confronting them to specific real life examples. We start by analyzing the firm's financing decision in perfect markets. We outline the role of taxes in financing and project-valuation. Incorporating the notion of financial distress and bankruptcy we draw the Static Trade-off Theory of Capital Structure. We then focus on the potential conflicts of interest between shareholders and debt holders and between shareholders and management, and their implication for the firm's capital structure decision. We conclude this part by discussing dynamic considerations the firm might have when setting its capital structure.


Our second topic will focus on the firm's payout policy, i.e., we will look at the question of when and how the firm is to distribute excess cash to shareholders. We show, that, as with capital structure, a firm can create value by its payoutpolicy only in the presence of the some market imperfection such as taxes, agincy costs, transation costs or asymmetric information between management and investors.

The thrird topic of the course discusses the motives for mergers, the cost and benefits of mergers, and possible takeover tactics.

The class-format will be a micture of lectures and problem solving sessions where students are asked to present their solutions for the exercises.

The second part of the course enables students to deepen theri knowledge in the topics introduced in the first part of the course. We will cover some seminar papers and class participation will take the form of paper presentations.

Learning Objectives

Upon completing this course students should be able to:

  • Discuss the financing decisions of corporations
  • Understand the importance of asymmetric information and signaling in capital markets and financial decisions.
  • Critically discuss the question of the dividend policy a firm should follow.
  • Alalyze the merits of mergers, acquisitions and other restructurings

Course Outline

Part I: Capital Structure

  • Irrelevance of capital structure in perfect capital markets
  • Impact of taxes on capital structure
  • Capital structure and financial distress
  • Capital structure and asymmetric Information
    • Signaling
    • Conflicts of Interest between shareholders and debt holders
    • Conflicts of Interest between shareholders and managers
  • Recent development in capital structure theory

Part II: Payout Policy

  • Payout policy in perfect capital markets
  • Impact of taxes on payout policy
  • Dividends and transaction costs
  • Dividends and asymmetric information

Part III: Mergers and Acquisition

  • Reasons to acquire
  • Market reaction to M&A
  • Who gets the value added from takeover
  • Takeover defenses

Readings

Lecture notes will be distributed on each lecture.

Recommended text books:

  • Jonathan Berk and Peter DeMarzo, Corporate Finance, Pearson International Edition, 2007 1st edition
  • Mark Grinblatt and Sheridan Titman, Financial Markets and Corporate Strategy, McGraw Hill, 1982, 2nd edition

Some lectures will be based on original journal articles.

Institut für Finanzwirtschaft
Fakultät für Wirtschaftswissenschaften
Universität Wien

Oskar-Morgenstern-Platz 1
1090 Wien
T: +43-1-4277-38262
F: +43-1-4277-838262
Universität Wien | Universitätsring 1 | 1010 Wien | T +43-1-4277-0