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040094 KU Corporate Finance 1 (MA) (2021S)

4.00 ECTS (2.00 SWS), SPL 4 - Wirtschaftswissenschaften
Continuous assessment of course work
REMOTE

Summary

Registration/Deregistration

Note: The time of your registration within the registration period has no effect on the allocation of places (no first come, first served).
Registration information is available for each group.

Groups

Group 1

There will be 2 groups of CF1 being offered, with identical content. Group 1 is on Thursday, and Group 2 is on Friday.
There should be sufficient space to accommodate all interested students. Therefore please select a group whose schedule suits you better, and register for ONLY ONE GROUP.

max. 50 participants
Language: English
LMS: Moodle

Lecturers

Classes (iCal) - next class is marked with N

The teaching is done digitally.

Thursday 04.03. 11:30 - 14:45 Digital
Thursday 11.03. 11:30 - 14:45 Digital
Thursday 18.03. 11:30 - 14:45 Digital
Thursday 25.03. 11:30 - 14:45 Digital
Thursday 15.04. 11:30 - 14:45 Digital
Thursday 22.04. 11:30 - 14:45 Digital
Thursday 29.04. 11:30 - 14:45 Digital
Thursday 06.05. 11:30 - 14:45 Digital

Reading list

The main reading material for the course is contained in:
• “Corporate Finance”, 5th Edition by P.DeMarzo and J.Berk, Pearson Global Edition. (2019).
• “The New Corporate Finance. Where Theory Meets Practice”, 3rd Edition by D.Chew, McGraw-Hill Irwin (CHEW).
Supplementary Readings by Topic:
I: Capital Structure Theories and Payout (Parts I-II)
• Chew, D. (2001), ‘The Modigliani-Miller Propositions after Thirty Years’ Journal of Applied Corporate Finance, Vol. 6.Num.1
• Graham, J. & Harvey, C. (2002), “How do CFOs make capital budgeting and capital structure decisions?” Journal of Applied Corporate Finance, 15(1): pp.8-23
• Opler, T.C., Saron, M. & Titman, S. (1997), “Designing capital structure to create shareholder value.” Journal of Applied Corporate Finance, 10(1): pp.21-34
• Smith, C.W. (1986), “Raising capital: theory and evidence.” Midland Corporate Finance Journal, 4: pp.6-22
• Barclay, M.J. & Smith, C.W. (1996), “On financial architecture: leverage, maturity, and priority.” In: Chew, D.H. (eds.) (2001) New corporate finance: where theory meets practice. 3rd ed. Boston, Mass.: Irwin McGraw-Hill, pp.210-223
• Ghosh, C. & Woolridge, J.R. (1988), “An analysis of shareholder reaction to dividend cuts and omissions.” Journal of Financial Research, 11(4): pp.281-294
II. Selected Topics – Financial Distress and Restructuring
• Franks, Nyborg and Torous, “A Comparison of US, UK and German Insolvency Codes,” Financial Management, Volume 25, No 3.
• Stuart C. Gilson (1991), “Managing Default: Some Evidence on How Firms Choose Between Workouts and Chapter 11”, Journal of Applied Corporate Finance Volume 4, Issue 2.
• Lawrence A. Weiss (1991), “The Bankruptcy Code and Violations of Absolute Priority”, Journal of Applied Corporate Finance, Volume 4, Issue 2.

Group 2

max. 50 participants
Language: English
LMS: Moodle

Lecturers

Classes (iCal) - next class is marked with N

The teaching is done digitally.

Friday 05.03. 09:45 - 13:00 Digital
Friday 19.03. 09:45 - 13:00 Digital
Friday 26.03. 09:45 - 13:00 Digital
Friday 16.04. 09:45 - 13:00 Digital
Friday 23.04. 09:45 - 13:00 Digital
Friday 30.04. 09:45 - 13:00 Digital
Friday 07.05. 09:45 - 13:00 Digital
Friday 14.05. 09:45 - 13:00 Digital

Reading list

The main reading material for the course is contained in:
• “Corporate Finance”, 4th Edition by P.DeMarzo and J.Berk, Pearson Global Edition. (2013).
• “The New Corporate Finance. Where Theory Meets Practice”, 3rd Edition by D.Chew, McGraw-Hill Irwin (CHEW).
Supplementary Readings by Topic:
I: Capital Structure Theories and Payout (Parts I-II)
• Chew, D. (2001), ‘The Modigliani-Miller Propositions after Thirty Years’ Journal of Applied Corporate Finance, Vol. 6.Num.1
• Graham, J. & Harvey, C. (2002), “How do CFOs make capital budgeting and capital structure decisions?” Journal of Applied Corporate Finance, 15(1): pp.8-23
• Opler, T.C., Saron, M. & Titman, S. (1997), “Designing capital structure to create shareholder value.” Journal of Applied Corporate Finance, 10(1): pp.21-34
• Smith, C.W. (1986), “Raising capital: theory and evidence.” Midland Corporate Finance Journal, 4: pp.6-22
• Barclay, M.J. & Smith, C.W. (1996), “On financial architecture: leverage, maturity, and priority.” In: Chew, D.H. (eds.) (2001) New corporate finance: where theory meets practice. 3rd ed. Boston, Mass.: Irwin McGraw-Hill, pp.210-223
• Ghosh, C. & Woolridge, J.R. (1988), “An analysis of shareholder reaction to dividend cuts and omissions.” Journal of Financial Research, 11(4): pp.281-294
II. Selected Topics – Financial Distress and Restructuring
• Franks, Nyborg and Torous, “A Comparison of US, UK and German Insolvency Codes,” Financial Management, Volume 25, No 3.
• Stuart C. Gilson (1991), “Managing Default: Some Evidence on How Firms Choose Between Workouts and Chapter 11”, Journal of Applied Corporate Finance Volume 4, Issue 2.
• Lawrence A. Weiss (1991), “The Bankruptcy Code and Violations of Absolute Priority”, Journal of Applied Corporate Finance, Volume 4, Issue 2.

Information

Aims, contents and method of the course

The Corporate Finance I course is an introductory course that forms the first part of a two-course sequence covering topics in Corporate Finance. The aim of the course is to provide a broad conceptual and practical platform for analysing issues in Corporate Finance.
The objective is to develop a framework to think about financial decisions firms regularly undertake. We will go back and forth between developing theories and confronting them with specific real life examples. We start by analysing 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 on the Static Trade-off Theory of Capital Structure. We analyse the role of information in shaping the financing of corporations and discuss the resulting pecking order of financing. We then focus on the potential conflicts of interest between shareholders and debt holders and between shareholders and management, and their implications for the firm’s capital structure decision. We conclude this part by discussing dynamic considerations the firm might have to make when setting its capital structure.
Second, we will focus on the firm’s pay out policy, i.e. we will look at the question of when and how the firm is able to distribute excess cash to shareholders. We show, that, as with capital structure, a firm can create value by its pay out policy only in the presence of market imperfections such as taxes, agency costs, transaction costs or asymmetric information between management and investors. We also discuss cash management by corporations and the usefulness of credit lines for them.
The third topic of the course analyses mergers and acquisitions (M&As).

Upon completing this course, students should be able to:
• Discuss the financing decisions of corporations.
• Understand the importance of asymmetric information and signalling in capital markets and financial decisions.
• Critically discuss the question of the dividend policy a firm should follow.
• Understand the feasibility and trade-offs employed in the different forms of restructuring for financially distressed firms.
• Explore different methods of issuing securities and understand the stock price reaction to issuing securities.

PART I: CAPITAL STRUCTURE
Session 1-2:
Irrelevance of capital structure in perfect capital markets
Impact of taxes on capital structure
Capital structure and financial distress
Session 3:
Capital structure and asymmetric Information (Signalling)
Session 4:
Conflicts of Interest between shareholders and debt holders
Conflicts of Interest between shareholders and managers
PART II: PAYOUT POLICY
Session 5:
Pay out policy in perfect capital markets
Impact of taxes on pay out policy
Dividends and transaction costs
Dividends and asymmetric information
PART III: CORPORATE RESTRUCTURING
Session 6:
The economics of M&A
Reasons to acquire.
Market reaction to M&A
Who gets the value added from takeovers
Takeover defences

Assessment and permitted materials

Course format and methodological approach
The course “Corporate Finance I” consists of 7 three hour sessions. Sessions consist of lectures, exercise-solving and at least one case study, and will involve class discussion.
Case Studies
The case method is one of the most effective pedagogical tools to sharpen your analytical and decision-making skills, as it requires you to be an active participant in financial decisions. The discussion constitutes an opportunity to defend your position and to learn from others, by listening to their comments and criticism. Classrooms are our training environments to prepare you for business challenges.
You are encouraged to meet in groups to discuss and analyse the cases. In the past, students have found that these groups complement the class discussion well.
Regarding the cases, each group will submit a three-page memorandum of analysis and recommendations covering the case study questions plus any accompanying tables you wish to include. Tables should be well organized and labelled. Be sure to indicate how you arrived at your conclusions. In addition, groups are required to prepare a power point presentation, including the main points of the analysis.
What do I expect from you in class
This is an interactive course, where your active participation is required. Attendance is compulsory.
A learning area will be available in the Intranet (Moodle). There, you would find instructions for the sessions, communications, bibliography, etc. Please look at it a couple of times a week. Slides of the sessions will also be posted here, always BEFORE the class.

Minimum requirements and assessment criteria

Attendance is COMPULSORY. The evaluation will be based on the following items:
40% Mid-term Exam
50% Final Exam
10% Case Study

Examination topics

All lecture materials and paper presentations.

Association in the course directory

Last modified: Mo 03.05.2021 11:07