FIN 2704/2704X
Course Overview
Course Objectives
• Provide the foundations to understand key
concepts and tools used in Finance
• Provide a broad overview of the financial
environment under which firms operate
• Introduces the conceptual and analytical skills
necessary to make sound financial decisions
2
Content Delivery
FIN2704/2704X
• 1 course, same materials, 1 distribution
Lectures
• Weekly in-person lecture during your registered lecture section
– LA1 (Friday 12pm – 2pm)
– LA2 (Wednesday 10am – 12pm)
– LA3 (Wednesday 12pm – 2pm)
3
Content Delivery
Tutorials
• Weekly in-person tutorial conducted by tutors.
• Attendance will be part of your participation score.
Please make sure that you
register for a tutorial section
Note: All course registration matters are handled by the BBA Office
4
Course Materials
Textbook
• Fundamentals of Corporate Finance, 13th Edition
by S.A. Ross, R.W. Westerfeld & B.D. Jordan
- Quick Guide on how to purchase e-textbook in
Canvas (Go to Files > Admin)
- Note: Older versions may be used but you
are responsible for checking for consistency.
Financial Calculator
•
Texas Instruments BAII Plus
Financial Calculator is recommended
Materials on Canvas
•
•
Lecture slides
Tutorial questions
5
Course Assessment
Component
Weight
Quiz (best 2 of 3): During registered tutorials
15%
Tutorial Class Participation
10%
Midterm: Week 8 TBC
30%
Final Exam: 27 Nov 1 – 2.30pm
45%
Total
100%
6
Quizzes
• Three quizzes will be held over the course of the semester
– Best 2 of 3
– No make-up quizzes
• The quizzes will take place during your tutorial session
Note: You will only receive credit for quizzes completed in
your registered tutorial section
• All quiz marks from each tutorial section may be
normalized at the end of the semester such that all tutorial
sections will have the same average mark
7
Tutorial Class Participation
• Your class participation marks will be allocated by your
tutor based on:
– Tutorial attendance
– Participation in class discussions (do the tutorial problems prior to
the session)
– Tutorial presentations (if presentations are assigned by your tutor)
• You will only receive credit for participation made in
the specific tutorial section that you are registered for.
8
Midterm Test & Final Exam
• On-site digital assessment using Examplify
– ONE A4-sized double-sided help sheet is allowed
• The Midterm Test will take place in Week 8.
– The materials covered in the Midterm Test cover
Lectures 1–6 and Tutorials 1–5.
• The Final Exam will take place on 27 Nov 1 – 2.30pm.
– The materials covered in the Final Exam cover
Lectures 1–12 and Tutorials 1–11.
9
How to use Examplify
If you are new to Examplify or have had problems with Examplify, attend one of
Examplify briefing sessions arranged by CIT
https://wiki.nus.edu.sg/display/DA/Common+Briefing+Sessions
For Year 1 and Exchange students, you would already have received
communication that briefing sessions have been specially arranged for you and
it is mandatory for you to attend one of these sessions.
If none of the above options is possible:
https://wiki.nus.edu.sg/display/DA/Getting+Started
- Go through the briefing slides
• Examplify Assessment - https://wiki.nus.edu.sg/x/daBJCw
• Or watch the briefing video - https://wiki.nus.edu.sg/x/tgg_EQ
- Take a few practice exams
- Write to citbox25@nus.edu.sg if you run into any technical issues
You are responsible for familiarizing yourself
with Examplify before our midterm
10
Questions
All questions on Lecture material should be posted on Canvas
Discussion Forum. This will enable all students to benefit from
the questions and answers.
Ask Me via email
• Course management/Admin
• Midterm Test
management/Admin
• Final Exam
management/Admin
Ask your Tutor via email
• Materials covered in practice
midterm papers, practice final
exams
• Tutorial management/Admin
• Tutorial questions & solutions
• Quizzes management/Admin
11
Communication
•
•
Announcements will be posted via Canvas throughout the semester.
You are expected to read all announcements to keep abreast of
updates for the course.
Name
Tutorial Groups
Contact
Mr. Chong Lock Kuah
TG1 – TG11
fnbclk@nus.edu.sg
Mr. Winston Low
TG12 – TG15
winstonlow@nus.edu.sg
Ms. Yan Yu
TG16 – TG17
yu.yan@u.nus.edu
Mr. Tan Chek Ann
TG18 – TG19
cat@u.nus.edu
12
FIN 2704/2704X
Week 1
Introduction to Financial Management
Learning objectives
• Know the definition of “Finance” and the scope of financial studies
• Know the basic types of financial management decisions
• Know the financial implications of the different forms of business
organization
• Understand the role of financial managers in achieving the goal of
financial management
• Understand the conflicts of interest (agency problems) that can
arise between owners and managers (agency relationships)
• Know the various types of financial markets
14
What is Finance?
A discipline concerned with
determining value (what something
is worth today) and making
decisions based on that value
assessment. The finance function
allocates resources, including the
acquiring, investing, and managing
of resources.
Image source: www.google.com/url?sa=i&url=https%3A%2F%2Fwww.yayimages.com%2F1443389%2Ffinance-wordcloud.html&psig=AOvVaw1J28P1lQtsO6eT5gaHS1l5&ust=1592013235191000&source=images&cd=vfe&ved=0CAIQjRxqFwoTCJjnmeiV--kCFQAAAAAdAAAAABAO
15
Government finance
Singapore – KL high speed rail
Sources:
•
https://www.straitstimes.com/singapore/transport/financing-singapore-kl-high-speed-rail-a-complex-task-analysts
•
https://www.channelnewsasia.com/news/asia/kl-singapore-hsr-high-speed-train-malaysia-mahathir-12191180
•
https://www.iseas.edu.sg/?s=singapore+KL+HSR
16
Corporate/Business finance
• A company wants to replace its current production line with a line
of new more expensive and more efficient machines
– Should it buy the new machines?
• A firm needs to purchase a piece of equipment
– Should it buy a cheaper machine with a shorter lifespan or a
more expensive machine that lasts longer?
• A company is deciding whether to develop a new product
– Most of the development costs will be incurred before any
sale revenues will be realized – is it viable?
• A business is considering how to finance its operations:
– Borrow or bring in new investors/shareholders?
17
Personal finance
The principles behind making correct business finance
decisions are the same as those used for individual finance
decisions. So the good news is that the lessons of this course
can benefit you in many areas of your personal life.
You can begin to theoretically and quantitatively address:
•
•
•
•
•
When to start saving for retirement and how much to save?
How to evaluate the terms for a home mortgage?
Whether a car loan or a lease is more advantageous?
Is a particular stock a good investment? Is a particular fund a good
investment?
How to finance a child’s education?
18
Main areas of finance
1. Investments
2. Financial Markets and Intermediaries
3. International Finance
4. Fintech
5. Corporate/Business Finance (main focus of this course)
19
Investments
The study of financial transactions from the
perspective of investors outside the firm
Examples:
• How do we assess the risk of various financial securities?
• How do we manage a portfolio (a group) of financial
securities to achieve a stated objective of the investor?
• How do we evaluate portfolio performance?
20
Financial markets and intermediaries
Financial markets
The study of markets where financial securities
(such as stocks and bonds) are bought and sold
Financial intermediaries
The study of financial institutions (such as
commercial banks, investment banks, and insurance
companies) that facilitate the flow of money from
savers to demanders of money
21
International Finance
Specialization in international aspects of either
corporate finance, investments or financial institutions
Examples:
• Understanding international business operations needs, e.g.
exchange rate, political risks, etc.
• Portfolio managers and analysts of foreign assets
• Banks making loans across country lines
22
Fintech
Combination of Finance and Technology
Examples:
• Mobile payments, e.g. Paypal, Venmo, Paylah!
• Crowdfunding platforms, e.g. Kickstarter, GoFundMe
• Blockchain
• Roboadvisors and Stock Trading apps, e.g. Robinhood
23
Corporate/Business finance
Corporate/Business Finance addresses the following:
– Capital Budgeting decision:
What long-term investments should the firm take on?
– Capital Structure decision:
Where will we get the long-term financing to pay for the
investment?
– Working Capital Management decision:
How will we manage the everyday financial activities of the firm?
24
Capital Budgeting Example
25
THE STRAITS TIMES
BUSINESS
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SIA raises US$500m in US dollar bond debut, with demand
exceeding US$2.85b
Capital Structure Example
SIA raises US$500m in US dollar bond debut, with demand exceeding US$2.85b | The Straits Times
THE STRAITS TIMES
BUSINESS
Singapore Airlines is the first major airline in Asia to tap the global debt markets in 2021.
11/5/22, 9:45 AM
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ST PHOTO: ALPHONSUS CHERN
SIA raises US$500m in US dollar bond debut, with demand
Ann Williams
exceeding
US$2.85b
UPDATED 14 JAN 2021, 6:00 PM SGT
SINGAPORE - Singapore Airlines has raised US$500 million (S$663 million) in its first US dollar-denominated
bond issue, with final demand reaching more than US$2.85 billion, the company said on Thursday (Jan 14).
Singapore Airlines is the first major airline in Asia to tap the global debt markets in 2021.
ST PHOTO: ALPHONSUS CHERN
Ann Williams
UPDATED 14 JAN 2021, 6:00 PM SGT
The oversubscribed issue was anchored by high quality institutional investors includingSINGAPORE
real money
asset
- Singapore Airlines has raised US$500 million (S$663 million) in its first US dollar-denominat
bond issue, with final demand reaching more than US$2.85 billion, the company said on Thursday (Jan 14).
managers, said SIA.
The oversubscribed issue was anchored by high quality institutional investors including real money asset
managers, said SIA.
their "strong support", chief executive officer Goh Choon Phong said: "We are
Thanking investors for their "strong support", chief executive officer Goh Choon Phong Thanking
said:investors
"Weforare
confident that this will further strengthen SIA's competitive advantage in the industry, and bolster our abili
to emerge stronger from the challenges posed by the Covid-19 pandemic."
confident that this will further strengthen SIA's competitive advantage in the industry, and
bolster our ability
The five-year bonds, which carry an annual coupon of 3 per cent per annum, are due to mature on July 20,
2026.
They
are expected to be issued on Jan 20, at an issue price of 99.573 per cent of their principal amoun
to emerge stronger from the challenges posed by the Covid-19 pandemic."
The five-year bonds, which carry an annual coupon of 3 per cent per annum, are due to mature on July 20,
SIA raises US$500m in US dollar bond debut, with demand exceeding US$2.85b | The Straits Times
9:45 AM
2026. They are expected to be issued on Jan 20, at an issue price of 99.573 per cent of their principal11/5/22,
amount.
https://www.straitstimes.com/business/companies-markets/singapore-airlines-raises-us500-million-in-us-dollar-bond-debut
Proceeds from the bond issue will be used for aircraft purchases, related payments and other general
purposes including refinancing of existing borrowings.
https://www.straitstimes.com/business/companies-markets/singapore-airlines-raises-us500-million-in-us-dollar-bond-debut
Page
Page 1 of 5
SIA said the issuance "provides it with the financial flexibility to capture medium-to-long term growth
beyond the Covid-19 pandemic".
It reiterated that the company will continue to explore other means to further strengthen its liquidity as
necessary.
Singapore Airlines is the first major airline in Asia to tap the global debt markets in 2021.
ST PHOTO: ALPHONSUS CHERN
Ann Williams
How to grow your money and career
UPDATED 14 JAN 2021, 6:00 PM SGT
Get a Head Start with ST's new weekly newsletter
26
performance worsen: Study
Working Capital Management Example
Half of Singapore's business sectors see working capital performance worsen: Study | The Straits Times
THE STRAITS TIMES
BUSINESS
11/5/22, 9:57 AM
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Of 15 industries surveyed, seven managed to improve their net working capital days year on year, two barely maintained their performance and the remaining six
saw their net working capital days deteriorate. PHOTO: ST FILE
Half
of Singapore's business sectors see working capital
Stephanie Luo
performance worsen: Study
PUBLISHED 14 DEC 2017, 3:34 PM SGT
SINGAPORE - Working capital performance in half of Singapore's business sectors has deteriorated year on
year, with medium-sized companies struggling the most in managing their working capital, a joint study by
PwC Singapore and Spring Singapore has found.
Of 15 industries surveyed, seven managed to improve their net working capital days year on year, two barely maintained their performance and the remaining six
saw their net working capital days deteriorate. PHOTO: ST FILE
Stephanie Luo
PUBLISHED 14 DEC 2017, 3:34 PM SGT
SINGAPORE - Working capital performance in half of Singapore's business sectors has deteriorated y
medium-sized companies struggling the most in managing their working capital, a joint st
According to the Singapore Working Capital Study 2017 launched by the two partiesyear,
onwith
Thursday
(Dec 14),
PwC Singapore and Spring Singapore has found.
the drag in performance was due to an increase in the time taken to collect cash from
salesto the
and
an inventory
According
Singapore
Working Capital Study 2017 launched by the two parties on Thursday (D
the drag in performance was due
to an increase
in the time taken to collect cash from sales and an in
Half of Singapore's business sectors see working capital performance worsen: Study | The Straits Times
9:57 AM
increase, partially off-set by an increase in the time to pay creditors that might not be
sustainable in11/5/22,
the
long
increase, partially off-set by an increase in the time to pay creditors that might not be sustainable in
term.
term.
The working days
capital study
looked
1,000 public and private companies across 15 industries in
Of the 15 industries surveyed, seven managed to improve their net working capital (NWC)
year
onat over
year,
Singapore.
The
capital study
looked
at over 1,000
public
and private
companies
across
industries the
in study
two working
barely maintained
their
performance
and the
remaining
six saw
their NWC
days15
deteriorate,
Singapore.
found.
https://www.straitstimes.com/business/companies-markets/half-of-singapores-business-sectors-see-working-capital-performance
NWC days measure the liquidity of a business and how long it takes to convert its working capital into
revenue. The longer the cycle is, the longer a business is tying up capital in its working capital without earning
a return on it.
https://www.straitstimes.com/business/companies-markets/half-of-singapores-business-sectors-see-working-capital-performance
Page 1 of 3
The study identified some sectors that struggle more than others, including energy & chemicals which
suffered significant revenue loss (-25 per cent year on year) while struggling to manage their receivables (+29
per cent year on year) and inventory (+38 per cent), and tried to partially counterbalance their cash
Of 15 industries surveyed, seven managed to improve their net working capital days year on year, two barely maintained their performance and the remaining six
constraints by increasing their days to pay.
saw their net working capital days deteriorate. PHOTO: ST FILE
Another struggling sector is information and communications technology and media, which the study said is
"due for wakeup call" with a 41 per cent increase in NWC days.
Stephanie Luo
PUBLISHED 14 DEC 2017, 3:34 PM SGT
27
Business Organizations
Forms of Business Organizations
1. Sole Proprietorship
2. Partnership
Increasing in
complexity
and costs
3. Corporation
29
Sole Proprietorship
An individual owns and manages the business
Advantages
– Easiest to start
– Least regulated
– Single owner keeps all the
profits
– Taxed as personal income*
Disadvantages
– Unlimited liability
– Limited to life of owner
– Equity capital limited to owner’s
personal wealth
– Difficult to sell ownership interest
– Taxed as personal income*
* Whether this ends up an advantage or disadvantage would depend on the
personal and corporate tax rates in that jurisdiction
30
Partnership
A group of individuals collectively own and manage the business
Advantages
–
–
–
–
Two or more owners
More capital available
Relatively easy to start
Income taxed as personal
income*
Disadvantages
– General partnership: unlimited
liability
– Limited partnership: general
partner(s) & limited partners
– Partnership dissolves when one
partner dies or wishes to sell
– Difficult to transfer ownership
– Income taxed as personal income*
Roughly the same advantages and disadvantages as a sole proprietorship
31
Corporation
Created via Articles of Incorporation
Advantages
– Limited liability
– Unlimited life
– Separation of ownership and
management
– Transfer of ownership is easy
– Easier to raise capital
Disadvantages
– Separation of ownership and
management (and the resulting
potential for agency costs)
– Double taxation*
– Income taxed at the corporate
income tax rate
– Dividends taxed at personal
income tax rate*
* Not for Singapore
32
Corporation
Created via Articles of Incorporation, which
•
Set out the purpose of the business
•
Establish the number of shares that can be issued
•
Set the number of directors to be appointed
Ownership and management are separated.
A corporation issues equity shares
•
The holders of these shares are the owners of the firm
•
Although stockholders own the corporation, they do not necessarily
manage it. Instead they vote to elect a Board of Directors (BOD). The
BOD represents the shareholders and in this vein, (i) selects the
management team, (ii) appoints the auditors and (iii) is responsible for
checking/monitoring management’s actions.
33
Corporate structure
Separation of Ownership and Control
Board of Directors
Assets
Shareholders
Debt
Debtholders
Firm Management
Equity
34
Corporation
• Private Companies
– Firm’s shares are usually closely held, i.e., ownership is
closely held by a relatively small number of
shareholders and shareholders often include the
companies’ original founders, some financial backers
(e.g., venture capitalists) and others
– Shares are not traded on any exchange
• Public Companies
– Firm’s shares are listed on a stock exchange, whereby
the company’s shares are widely dispersed and traded
in the secondary markets
35
Corporations:
Two main sources of external financing
1. Debt
• Lenders – By lending money to the corporation, debt holders
become the corporation’s creditors and lenders.
• Relationship Determined by Contract - A debt contract is a
legally binding agreement. It specifies principal, interest,
maturity date, and specific protective covenants.
• Security and Seniority – In case of bankruptcy, debt holders
collect before equity holders. However, different debt holders
have different priority claim to the cash flows and assets of a
bankrupt firm, according to their respective debt contracts.
36
Corporations:
Two main sources of external financing
2. Equity
• Shareholders’ Ownership Rights – by buying shares in
the corporation, shareholders become the owners of
the firm
o Shareholders are the residual claimants of the firm
• Shareholders’ Payoffs – shareholders receive monetary
returns in the following ways:
– Dividend per share, paid to investors from the corporation’s
after-tax dollars
– Capital gain from the sale of shares (ownership rights) at a
price higher than they were purchased for
37
Financial Managers
What should the goal of a corporation be?
• Maximize sales/market share?
– Lowering price or relaxing credit terms
• Minimize costs?
– Lowering quality or R&D
• Maximize profits?
– Short-term nature
– Definition of profits: accounting or economic
– Risk is not addressed
The goal of financial management is to maximize the market
value of existing owners’ equity. For a publicly-listed corporation,
this is the same as maximizing the current stock price.
39
The Role & Decisions of the Financial Manager
Maximise Value (stock price) of the Firm
Capital
Budgeting
decision
Capital
Structure
decision
Working Capital
Management
decision
What long-term
investments or
projects should the
business take on?
Where do we get capital
to pay for our assets?
Should we use debt or
equity?
How do we manage
the day-to-day
finances of the firm?
40
Agency Problem
Agency relationship:
– Principal hires an agent to represent their interest
– Stockholders (principals) hire managers (agents), via the
Board of Directors, to run the company
Agency problem:
– Conflicts of interest between principal and agent
– Managers are naturally inclined to act in their own best
interests
– The costs of these conflicts of interest are called agency
costs.
41
Jamie Dimon has built his reputation on pursuing growth while keeping a lid on costs since taking over as chief executive in 2005 © Jeenah
Moon/Reuters
Joshua Franklin in New York and Stephen Morris in London MARCH 23 2022
JPMorgan Chase’s chief executive Jamie Dimon is facing rare investor criticism over a
multibillion-dollar plan to modernise the group’s technology and the decision to enter the
UK’s highly competitive retail banking market.
Shareholders told Dimon and his leadership team in February that the bank was providing
insufficient detail about its ambitious technology spending plans, according to three people
who attended the meeting in Florida.
Jamie Dimon has built his reputation on pursuing growth while keeping a lid on co
Moon/Reuters
Dimon
was also
told that
JPMorgan
neededsay
to explain
better
moveclose
into the
crowded
UKare
The
biggest
concerns
from
shareholders,
analysts
and its
people
to the
matter,
retail market
a digital-only
bankon
last
year,
the people
person
added
around
planswith
to increase
spending
new
projects
thissaid.
year One
by 30
per cent
to there
almost
Joshua$15bn
Franklin in New York and Stephen Morris in London MAR
was
concern over
expansion
at a time
when rival Citigroup is scaling back its
—
theparticular
largest proportion
ofthe
which
is dedicated
to tech.
international branch network.
JPMorgan Chase’s chief executive Jamie Dimon is fac
multibillion-dollar plan to modernise the group’s tech
The investors say JPMorgan has only provided limited information about where that
cash
UK’s highly competitive retail banking market.
“The uncertainty is pretty high [about the UK retail banking push]. I don’t think they’ve
will go — so far earmarked for areas such as cloud capabilities, new hires and marketing —
provided a lot of metrics to judge success at this point,” one of JPMorgan’s largest
Shareholders told Dimon and his leadership team in F
while the bank has cautioned that the spending could lead to it missing a target forinsufficient
returndetail about its ambitious technology spen
the over
Financial
gan chiefshareholders
faces rare investortold
criticism
spendingTimes.
plans | Financial Times
on tangible common equity, a key measure of profitability, this year and next.
who attended
the meeting
in Florida.
1/4/22,
1:44 PM
Dimon was also told that JPMorgan needed to explain
retail
When
JPMorgan
plansafter
in January,
the bank’s frustration
shares fell 6that
per market with a digital-only bank last year, the pe
The
boost
to tech announced
spending atthe
thespending
bank comes
Dimon expressed
was
particular
//www.ft.com/content/b8415b42-a711-4757-abbd-7827ccae2992?shareType=nongift
Pageconcern
1 of 6 over the expansion at a time w
cent,
despite
it
also
unveiling
record
profits
last
year.
Overall,
the
bank’s
stock
has
fallen
international branch network.
JPMorgan has lost ground to more tech-savvy rivals.
about 15 per cent since the announcement while the broader KBW banking index is “The
down
uncertainty is pretty high [about the UK retail ba
“Jamie
fintechs
where
shouldn’t have lost share. So there’s a focus on
not a lot of metrics to judge success at this point
provided
roughlypoints
10 perto
cent
over the
samethey
period.
losing out again,” the JPMorgan investor said.
shareholders told the Financial Times.
- Financial Times,
23 Mar 2022
42
https://www.ft.com/content/b8415b42-a711-4757-abbd-7827ccae2992?shareType=nongift
Agency Costs
Direct agency costs:
– Expenditures that benefit management: car and
accommodation, big office, high pay
– Monitoring costs: auditors, audit committee, corporate
governance
Indirect agency costs:
– Lost opportunities which would increase firm value in the long
run, if accepted
43
Example of agency costs
HSBC Faces Investor Anger Over Proposed Pay Rise For Top Team
by Katherine Griffiths, Miles Costello, 16/2/2010
https://www.thetimes.co.uk/article/hsbc-faces-investor-anger-overproposed-pay-rise-for-top-team-fw69tzb27ms
Investors are understood to be particularly unhappy with the sum that
HSBC wants to pay Michael Geoghegan, its chief executive, who relocated
his office to Hong Kong on February 1.
•
HSBC will pay Michael Geoghegan, chief executive, an extra £800,000 a
year in "allowances" and "benefits in kind" for moving his family from
London to Hong Kong
https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7370366/HS
BC-boss-Michael-Geoghegan-paid-800000-a-year-to-move-to-Hong-Kong.html
44
Addressing the agency problem
• Compensation plans that tie the fortunes of the managers
to the fortunes of the firm
• Monitoring by lenders, stock market analysts and investors
• The threat that poorly performing managers will be fired
• The growing awareness of the importance of good
Corporate Governance
45
CEO compensation example
DBS CEO Compensation Package
Piyush Gupta’s 2014 compensation package’s 3 main components:
1. A Base Salary of S$1.2m
2. A Cash Bonus tied to performance and meeting of KPIs set on
Balanced Scorecard (Short Term Incentive) of $3.8m
3. A Share Plan with staggered vesting period between 2-4 years
(Long Term Incentive) of $5.1m
His compensation in 2019:
https://www.straitstimes.com/business/banking/dbs-ceo-piyush-gupta-sees-2-risein-pay-to-121m-for-2019-down-from-155-hike-in-2018
46
47
What is Corporate Governance?
“Term that refers broadly to the rules, processes, or laws by which
businesses are operated, regulated, and controlled. The term can refer to
internal factors defined by the officers, stockholders or constitution of a
corporation, as well as to external forces such as consumer groups,
clients, and government regulations.”
“…exists to serve corporate purposes by providing a structure within which
stockholders, directors and management can pursue most effectively the
objectives of the corporation"
- US Business Round Table White Paper on Corporate Governance September 1997
Good corporate governance requires you to view organizations as a web
of relationships between and among various stakeholders and to
manage their interests in a responsible manner
48
Splitting up CEO and Chairman Roles
49
Corporate governance example 1 (2013)
Source:
https://www.forbes.com/sites/halahtouryala
i/2013/05/21/why-jamie-dimon-wontoday/#3304e71f4c94
50
Corporate governance example 2 (2016)
Source:
https://www.ft.com/content/d32b1a1
a-b813-11e6-961e-a1acd97f622d
51
Corporate governance example 3 (2022)
FTX Collapse is a case study in bad governance
by Dan Byrne Nov 2022
https://www.thecorporategovernanceinstitute.com/insights/news-analysis/governance-causes-ftx-collapse/
52
Corporate governance in Singapore
53
Introductions to
Financial Markets
Financial Markets and the Corporation
• We’ve seen that the advantages of the corporation are that
ownership can be transferred more quickly than with other
forms of business and that money can be raised more
readily.
• Both of these advantages are significantly enhanced by the
existence of financial markets.
• The interplay between corporations and financial markets is
illustrated in the next slide.
55
Financial Markets and the Corporation
Exchange of
Money and
Real Assets
Income generated by
the firm’s assets is
reinvested into the firm
or distributed back to
the investors (i.e., the
holders of the firm’s
financial securities).
Capital Structure
Decisions
The firm invests these
funds in assets.
The Firm
Capital Budgeting
Decisions
The
World
Financial
Markets
Exchange
of Money
and
Financial
Assets
Investors
provide financing
to the firm in
exchange for
financial securities
(debt and equity).
Financial
Intermediaries
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Financial Markets
What are financial markets?
• Markets where “financial instruments” are traded
• Act as intermediaries between savers and borrowers
1. Primary Market vs Secondary Market
2. Money Markets vs. Capital Markets
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Primary Market vs. Secondary Market
Primary market
– Corporation is the seller; transaction raises money for the corporation
– Where newly-issued/original securities are traded
– Public offering – where securities are offered to public at large; needs
underwriting, more regulatory requirements, costly
– Private offering – where securities are offered to large financial institutions or
wealthy individuals etc.; less costly
Secondary market
–
–
–
–
Where existing financial claims are traded
Where getting market value of securities is easier
Dealer market (e.g. OTC markets, NASDAQ) – where buyers and sellers are
not buying from and selling to one another directly. Instead, transactions are
occurring through dealers.
Auction market (e.g. SGX, NYSE) – where there is an auction occurring where
the highest bidding price is matched with the lowest asking price
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Primary market example
Source: https://www.nasdaq.com/articles/nasdaq-welcomes-grab-the-largest-foreign-spac-combination
59
Secondary market example
Source:
https://www.straitstimes.com/business/co
mpanies-markets/sti-falls-344-as-asiasees-a-sea-of-red
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Money Markets vs. Capital Markets
Money markets
•
•
•
Where debt securities of less than one year are traded: treasury
securities, commercial paper, bills, inter-bank loans
Loosely connected dealer markets
Banks are major players
Capital markets
•
•
Where equity and long-term debt claims are traded
Equity is usually traded in auction markets (e.g., SGX, NYSE)
61
Money market example
Source: https://www.yesbank.in/media/press-releases/yes-bank-implements-asias-first-commercial-paper-issuance-on62
blockchain#:~:text=Mumbai%2C%20July%2011%2C%202019%3A,Limited%2C%20a%20natural%20resources%20conglomerate.
Capital market example
19 September 2014 on the NYSE
Source: https://www.ft.com/content/0f97cc70-4208-11e4-a7b3-00144feabdc0
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Overall Summary
1. The scope of financial studies:
• Corporate/Business finance
• Investments
• Financial markets and
intermediaries
• International Finance
• Fintech
2.Corporate/Business finance involves:
• Investment decisions
• Financing decisions
• Working capital management
decisions
3. Forms of business organization:
• Sole Proprietorship
• Partnership
• Corporation
4. Role of Financial Managers
• The goal of financial managers is to
maximize the market value of
owners’ equity (current stock price).
• Shareholders hire managers (via the
Board of Directors) to run the
company à Agency relationship.
• Conflicts of interest arise (agency
problems) resulting in Agency costs.
• Measures to address these problems
include tactical compensation plans,
monitoring, threat of firing and good
corporate governance.
5. Financial Markets
• Primary vs. Secondary market
• Money vs. Capital market
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