ECO422 Advanced Corporate Finance
1. Capital Structure
a. Classical Theory
b. Leverage, betas, and option pricing
c. Asymmetric information
e. Real options (using binomial option pricing)
f. Empirical evidence
2. Earnings and Dividends
a. Classical theory
b. Earnings and dividend growth models
c. Stock market predictability using earnings, dividends, etc.
3. Incomplete Information and Moral Hazard
a. Adverse Selection (Signaling)
b. Moral Hazard (Asset Substitution, Cross-collateralization)
c. Agency (Free cash flow, managerial incentives)
e. Delegated monitoring (arms-length versus bank financing)
f. Security Design (information sensitivity)
4. Further Topics (examples)
a. Mergers and acquisitions, tender offers
b. Corporate governance
c. Recent empirical evidence
d. Optimal bankruptcy procedures
e. Internal capital markets
f. Incomplete contracts
g. Current events and consequences
h. Additional topics as time allows
In addition to these topics, there may be brief reviews binomial option pricing and game theory.
This course is a link between fundamental corporate finance and the more specialized courses in corporate finance. The overall aim is to give the student deeper insight into important key topics within corporate finance. The specific topics are listed in the course description (topics).
After completing this course, students will in terms of knowledge
- have an overview over standard theories and models of corporate finance
- understand the key driving forces in important models in corporate finance, including:
- understand the problems caused by asymmetric information and adverse selection
- understand the problems caused by moral hazard and agency relationships
- be able to discuss various means of handling the problems raised by asymmetric information and moral hazard
In terms of skills, students will
- have a critical view of, and be able to discuss, theoretical issues in corporate finance and related current events
- have developed basic skills in criticizing theory and in applying theory to analyze problems in corporate finance
- be able to use binomial option pricing, game theory, and additional methods to analyze models in corporate finance
Lectures. The teaching format may be adapted in full, or in part, for online teaching. It will be possible to follow the course without being physically present in class.
To take this course you should already have skills in
- game theory similar to those obtained in ECO400
- and skills in introductory corporate finance similar to those obtained in FIE402.
Credit reduction due to overlap
Requirements for course approval
To complete this course and take the final exam, students must first obtain course approval ("kursgodkjenning"), based on homework and other assigned course activities. Students who have not obtained course approval prior to the exam will not be allowed to take the exam. To obtain course approval, the student must complete course assignments, hand them in, and receive a sufficient average score for approval. All coursework, including assignments, must be completed in English
In Fall 2021, due to uncertainties surrounding the ongoing pandemic, the exam will be a administered as a written individual 4 hour home exam to be submitted digitally.
A - F.
Statistical software may be used (e.g. Eviews, Matlab, Stata)
Textbook: Copeland, T. S., Weston, F., & Shastri, K. (2005), "Financial Theory and Corporate Policy," Fourth Edition, Addison Wesley, ISBN 0-321-22353-5.
Further readings will be announced during the semester in addition to the following:
Copeland, T. S., Weston, F., & Shastri, K. (2005), "Financial Theory and Corporate Policy," Fourth Edition, Addison Wesley, Chapter 12 & 15 (12 & 14 in 4th edition dated (2014)).
Jensen, M.C. (1986), "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers" The American Economic Review, Vol. 76, No. 2, Papers and Proceedings of the Ninety-Eighth Annual Meeting of the American Economic Association, pp. 323-329.
Jensen, M. C. & Meckling, W. H. (1976), "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure," Journal of Financial Economics 3, p. 305-360.
Miller, M. H. (1977), "Debt and Taxes," Journal of Finance 32 (2), p. 261-275.
Myers, S. C. & Majluf, N. S. (1984), "Corporate Financing and Investment Decisions when Firms Have Information that Investors Do Not Have," Journal of Financial Economics 13, p. 187-221.
Dividend Policy, Earnings and Dividends Modeling
Copeland, T. S. & Weston, F., (2005), Chapter 16 (15 in 4th edition dated (2014)).
Mergers & Acquisitions
Copeland, T. S. & Weston, F., (2005), Chapter 18 (17 in 4th edition dated (2014)).
Grossmann, S.J. & Hart, O.D. (1980), "Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation," The Bell Journal of Economics, Vol. 11, No. 1. (Spring), pp. 42-64.
Additional Required Readings are likely to be included, and vary from semester to semester.
- ECTS Credits
- Teaching language
- English. This course is conducted in English and usually is attended by a substantial proportion of international students. Since all students should be on an equal footing in the course, all coursework must be completed in English. Specifically, the final exam, any other examinations or presentations, all assignments, class participation, etc., must be completed in English.
Autumn. Offered autumn 2021.
Associate Professor, Tommy Stamland, Department of Finance, NHH