Universität Wien

040410 KU Corporate Finance 1 (MA) (2016W)

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

Ein Vorziehen dieser LV ist nur moeglich, wenn bereits Principles of Finance positiv absolviert wurde


Note: The time of your registration within the registration period has no effect on the allocation of places (no first come, first served).


max. 50 participants
Language: English


Classes (iCal) - next class is marked with N

Thursday 06.10. 09:00 - 13:00 Hörsaal 16 Oskar-Morgenstern-Platz 1 2.Stock
Thursday 13.10. 09:00 - 13:00 Hörsaal 15 Oskar-Morgenstern-Platz 1 2.Stock
Wednesday 19.10. 09:00 - 13:00 Hörsaal 16 Oskar-Morgenstern-Platz 1 2.Stock
Thursday 20.10. 09:00 - 13:00 Hörsaal 16 Oskar-Morgenstern-Platz 1 2.Stock
Thursday 27.10. 09:45 - 11:15 Hörsaal 15 Oskar-Morgenstern-Platz 1 2.Stock
Wednesday 16.11. 09:00 - 13:00 Hörsaal 16 Oskar-Morgenstern-Platz 1 2.Stock
Thursday 17.11. 09:00 - 13:00 Hörsaal 16 Oskar-Morgenstern-Platz 1 2.Stock
Wednesday 30.11. 09:00 - 13:00 Hörsaal 16 Oskar-Morgenstern-Platz 1 2.Stock
Wednesday 07.12. 09:00 - 13:00 Hörsaal 16 Oskar-Morgenstern-Platz 1 2.Stock


Aims, contents and method of the course

The Corporate Finance course complements your Corporate Valuation course, and forms the second 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 focus of the Corporate Valuation course is on investment policy and project valuation ("How much is a project worth and which projects should I pick"). Here we focus on capital structure theories ("How to finance a selected investment?") and pay out policy ("Should I finance projects with debt or equity, should I pay investors through dividends or share repurchases?").
The aim 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 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 on the Static Trade-off Theory of Capital Structure. We analyze 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.
Secondly, we will focus on the firm's payout 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 payout 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 discusses the possible motives for mergers, costs and benefits of mergers and takeover tactics.
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.
-Appreciate the various channels of corporate governance and its impact on firm value and performance.
The course is held in English.
Course Contents
Part I: Capital Structure
Session1: Irrelevance of capital structure in perfect capital markets
Impact of taxes on capital structure
Capital structure and financial distress
Case Study: Debt Policy at UST, Inc.
Session 2: Capital structure and asymmetric Information (Signaling)
Session 3: Conflicts of Interest between shareholders and debt holders
Conflicts of Interest between shareholders and managers
Part II: Payout Policy
Session 4: Payout policy in perfect capital markets
Impact of taxes on payout policy
Dividends and transaction costs
Dividends and asymmetric information
Case Study: Infineon Technologies
Part III: Mergers and Acquisition
Session 5: The economics of M&A
Reasons to acquire.
Market reaction to M&A
Who gets the value added from takeovers
Takeover defenses
(1) Thunderbird
Schneider S. A. and Square D Company
(CF I)
(2) Harvard Business
The Loewen Group, Inc.
N. 9-201-082
Infineon Technologies
N. 08/2014-5961

Assessment and permitted materials

The course Corporate Finance I involves 7 three hour sessions. Sessions consist of lectures, execise-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 criticisms. Classrooms are our training environments to prepare you for business challenges.
There will be 1 case preparation. Cases must be handed in on time. No credit will be given for late cases. You are encouraged to meet in groups to discuss and analyze 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 labeled. Be sure to indicate how you arrived at your conclusions. In addition, groups are required to prepare a power porint 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.
Laptop/tablets policy. You are not supposed to use your laptop/tablets during case discussions. You have to be 100% focused in the discussions. You may use your laptops/tablets on the lectures/discussion sessions ONLY for academic use emailing, facebooking, tweeting, chatting, skyping, internet surfing, etc. should NOT be done during classes. Doing these would penalize strongly your grade on class participation.
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

40% Mid-term Exam
15% Case Study
45% Final Exam
Minimum requirement for a positive grade: at least 50% for each part.

Examination topics

All lecture materials and paper presentations.

Reading list

Packet of cases and readings (available through Moodle).
The main reading material for the course is contained in:
- Corporate Finance, 3th 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 new corporate finance
Where theory meets practice 3th ed.
McGraw-Hill Irwin
Ch 12: 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
In: Chew, D.H. (eds.) (2001) New corporate finance: where theory meets practice. 3rd ed. Boston, Mass.: Irwin McGraw-Hill, pp.277-293
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.
Initial Public Offerings and Other Equity Issues
Chew, Chapter 18.
Ritter, J, Investment Banking and Securities Issuance, Chapter 5, Handbook of Economics of Finance, Edited by G.M. Constantinides, M.Harris, and R.Stulz
Corporate Governance
Cremers, M. and A. Ferrell (2010): Thirty Years of Shareholder Rights and Firm Valuation, Yale School of Management, Harvard Law School
Gompers, P. Ishii, J. and A. Metrick (2003): Corporate Governance and Equity Prices, The Quarterly Journal of Economics, Vol. 118, No.1.
Bebchuk, L. and Y. Grinstein. 2005. The Growth of Executive Pay, Oxford Review Policy, Vol.21, No.2.
Bebchuk, Lucian and Fried, Jesse 2004 Pay Without Performance:Overview of the Issues, Journal of Applied Corporate Finance, Vol 17 No 4.
La Porta, R., Lopez De Salinas, F., Shleifer, A., and Vishny, R. W., 1998, Law and Finance, Journal of Political Economy Vol.106.

Association in the course directory

Last modified: Mo 07.09.2020 15:29