Unit Outline*
FINA7482
Advanced Corporate Finance
Semester 2, 2011
Crawley Campus
Unit Coordinator: Winthrop Professor Raymond da Silva Rosa
Business School
www.business.uwa.edu.au
* This Unit Outline should be read in conjunction with the Business School Unit Outline
Supplement available on the Current Students web site http://www.business.uwa.edu.au/students
FINA7482/Crawley/RdSR/18.07.11.
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© The University of Western Australia 2011
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UNIT DESCRIPTION
Introduction
I’ve been teaching Advanced Corporate Finance for several years and look forward to it every time.
The interaction with students in the class as we discuss corporate finance issues and relate them to
news reports and broader economic phenomena is stimulating. I particularly enjoy exploring with
students the practical relevance of corporate finance theory.
This year we are fortunate to have Professor David Yermack, a visitor from the Stern School of
Business, New York University, teach half the course. His classes will be shoehorned into the month
of August to fit the duration of his visit. Professor Yermack has taught FINA7482 before and, as one
might expect, his seminars were very well received.
Unit content
FINA 7482 Advanced Corporate Finance focuses on the corporation and its financing, pay-out and
restructuring activities (including M&A), as distinct from the investment portfolio approach adopted
in Advanced Investments.
The goal of the unit
The aim in Advanced Corporate Finance is to provide a coherent, rigorous framework for analysis of
corporate finance issues. This is done by reviewing theory and empirical evidence. The issues we
review are not merely of academic interest. The schedule includes presentations by leading WAbased businessmen, Adjunct Professor Tony Howarth, AO (President, Australian Chamber of
Commerce & Industry), and Adjunct Professor Mark Barnaba (Co-Founder and Co-Executive
Chairman, Azure Capital) that will attest the practical import of the material covered.
There are many topics of interest in corporate finance. This unit focuses on three broad themes
them: corporate governance (including a comparison of different interpretations of governance
around the world), corporate restructuring (with a particular focus on M&A), and the global financial
crisis (including an assessment of competing views). The themes have been chosen because of their
prominence and because each has attracted a wealth of research. Finance is among those disciplines
in business where research has lead market practice. Diligent engagement with material in the unit
will see you much better equipped to enter the business world or undertake further study at postgraduate level.
Learning outcomes
On completion of this unit, you should be able to:
•
Identify the differences between stockholder and stakeholder models of corporate
governance and appreciate the relevance of the distinction for corporate finance issues. The
stockholder perspective prevails in the US, UK and Australia whilst the stakeholder view
dominates in most of continental Europe and in Japan.
•
Describe the key features of the regulations on mergers & acquisitions (M&A), summarise
the key findings on M&A outcomes, identify the circumstances when diversification adds
value and when it destroys value and explain how “private equity” works.
•
Provide a nuanced critique of the strengths and limitations of the rational expectations model
that underpins much of neo-classical corporate finance theory.
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•
Recognise key features of the global financial crisis and explain their relevance for corporate
finance issues.
Educational principles and graduate attributes
In this unit, you will be encouraged and facilitated to develop the ability and desire to:
•
Apply the theory you have learned to analyse practical issues.
•
Articulate your understanding of various finance issues using concise, well developed
argument.
•
Relate the concepts you are exposed to and insights you develop to broader social issues
(for instance, the stakeholder theory of corporate governance is related to specific cultural
and social characteristics of the countries in which the theory is accepted and implemented).
•
Develop the confidence to defend a line of argument with integrity and poise.
•
Appreciate more clearly that there is no such thing as a “free lunch”; every solution to a
corporate finance problem has costs and benefits. This “no free lunch” idea extends beyond
corporate finance to a wide variety of issues.
TEACHING AND LEARNING RESPONSIBILITIES
Teaching and learning strategies
•
100 per cent of the marks that determine your final grade in Advanced Corporate Finance
are based on your answers to exam questions. The questions require primarily qualitative
answers. Some of the questions will be based on short articles drawn from the press (e.g.,
Australian Financial Review) and you will be required to comment on the point of view
expressed. It is important that you apply the theory and analysis you will have been exposed
to in class. Sample questions and sample model answers will be provided.
•
To do well in the exams you have to identify the issues, apply the appropriate analysis (and
typically there will be at least two sides to an issue), and express your analysis in a logical,
clear way with appropriate reference to supporting material.
•
I suggest that you take notes during the class and, at the end of every class, summarise the
main points: identify the key issues, outline the different perspectives on the issues and draw
a conclusion. These notes can then serve as the basis for revision.
Teaching and learning evaluation
You may be asked to complete two evaluations during this unit. The Student Perception of Teaching
(SPOT) and the Students’ Unit Reflective Feedback (SURF). The SPOT is optional and is an evaluation
of the lecturer and the unit. The SURF is completed online and is a university wide survey and deals
only with the unit. You will receive an email from the SURF office inviting you to complete the SURF
when it is activated. We encourage you to complete the forms as your feedback is extremely
important and can be used to make changes to the unit or lecturing style when appropriate.
Attendance
Participation in class, whether it be listening to a lecture or getting involved in other activities, is an
important part of the learning process. It is therefore important that you attend classes. More
formally, the University regulations state that ‘to complete a course or unit students shall attend
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prescribed classes, lectures, seminars and tutorials’. Students should not expect to obtain approval
to miss more than two classes per unit unless there are exceptional circumstances.
CONTACT DETAILS
Students are strongly advised to regularly access their student email accounts. Important information
regarding the unit is often communicated by email and will not be automatically forwarded to private
email addresses.
Unit coordinator/lecturer
Email:
Winthrop Professor Raymond da Silva Rosa
ray.dasilvarosa@uwa.edu.au
Phone:
(08) 6488 2974
Consultation hours:
By appointment
Assessment components
•
Mid-Semester test (based on Professor Yermack’s lectures): 50%
•
Final exam (based on Professor Da Silva Rosa’s lectures): 50%
Student Guild
Phone: (+61 8) 6488 2295
Facsimile: (+61 8) 6488 1041
E-mail: enquiries@guild.uwa.edu.au
Website: http://www.guild.uwa.edu.au
Charter of Student Rights and Responsibilities
The Charter of Student Rights and Responsibilities outlines the fundamental rights and
responsibilities
of
students
who
undertake
their
education
at
UWA
(refer
http://handbooks.uwa.edu.au/undergraduate/poliproc/policies/StudentRights ).
Appeals against academic assessment
The University provides the opportunity for students to lodge an appeal against assessment results
and/or progress status (refer http://www.secretariat.uwa.edu.au/home/policies/appeals ).
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UNIT SCHEDULE
Time/Date/Venue
9 am to 12 noon,
Thurs 4th August
Blakers Lecture
Theatre (Mathematics
bldg)
2 pm to 5 pm
Fri 5th August
BUSN1:01 (Biz
School)
Topic
1. Introduction
2. Agency costs definition and examples
Reading
“Separation of ownership and control” (1983) by
Eugene Fama & Michael Jensen Journal of Law and
Economics v26(2):301-325
3. Agency costs in
different organizations
4. Market efficiency
9 am to 12 noon,
Thurs 11th August
Blakers Lecture
Theatre (Mathematics
bldg)
5. Agency costs of free
cash flow
6. Voting, ownership and
control
“Agency costs of free cash flow, corporate
finance and takeovers” by Michael C. Jensen,
American Economic Review v76(2): 323-329
“Shareholder voting and corporate governance”
(2010) by David Yermack Annual Review of
Financial Economics pp: 2.2.1-2.23
2 pm to 5 pm
Fri 12th August
BUSN1:01 (Biz
School)
7. Shareholder activism
8. Private benefits of
control; family business
groups
“Private benefits of control: An international
comparison” (2004) by Alexander Dyck & Luigi
Zingale Journal of Finance v59(2): 537- 600
9 am to 12 noon,
Thurs 18th August
Blakers Lecture
Theatre (Mathematics
bldg)
9. Overview of mergers
& acquisitions
10. Economic sources of
merger gains
“Corporate Takeovers”
by Sandra Betton, B. Espen Eckbo
& Karin S. Thorburn, n B. E. Eckbo (ed.),
Handbook of Corporate Finance: Empirical
Corporate Finance, Vol. 2 (NorthHolland/Elsevier, Handbooks in Finance Series),
Chapter 15, 2008.
“An analysis of value destruction in
AT&T’s acquisition of NCR” (1995) by Thomas
Lys & Linda Vincent
Journal of Financial Economics v39: 353-378
2 pm to 5 pm
Fri 19th August
BUSN1:01 (Biz
School)
11. Parameters of
merger negotiations
12. Takeover defenses
Thursday 25th August
Mid-Semester test
Time & Venue to be
advised
2 pm to 5 pm
Fri 2nd September
BUSN1:01 (Biz
School)
Alternative conceptions
of corporate governance
in successful, mainly nonAnglo-Saxon, economies.
Fri 9th September
BUSN1:01 (Biz
School)
Value-maximisation: The
role of labour protection
Jensen, M.C., 2002, “Value maximization,
stakeholder theory, and the corporate objective
function” Business Ethics Quarterly v12(2): 235-256
Allen, F., and D. Gale, 2002, “A comparative
theory of corporate governance” Wharton
Financial Institutions Working Paper December
2002.Denis,
Fauver, L., & M.E. Fuerst, 2006, “Does good
corporate governance include employee
representation? Evidence from German
corporate boards” Journal of Financial Economics
v82:673-710.
Acharya, V.V., R. Baghai-Wadji, K.V. Subramanian,
2009, “Labor laws and innovation”
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Fri 16th September
BUSN1:01 (Biz
School)
Fri 23rd September
BUSN1:01 (Biz
School)
Fri 30th September
BUSN1:01 (Biz
School)
Fri 7th October
BUSN1:01 (Biz
School)
Glaeser, E., S. Johnson, and A. Shleifer, 2001,
“Coase versus the Coasians” Quarterly Journal of
Economics v116(3):853-899.
Law and finance: How the
Bernd Venohr and Klaus Meyer “Uncommon
nexus is interpreted in
common sense” (2009)
Germany and in China
Allen, F., J. Qian, and M. Qian, 2005, “Law,
finance and economic growth in China” Journal of
Financial Economics v77:57-116.
Kashyap, A.K., and L. Zingales, 2010, “The 2007-8
financial crisis: Lessons from corporate finance”
(introduction to special edition of the JFE on
the crisis) Journal of Financial Economics v97:303Introduction to the
305
financial crisis and
Brennan, M.J., 1994, “Incentives, rationality and
competing models of
society” Journal of Applied Corporate Finance
behavior used to explain
v7(Summer): 31-39
the crisis
Sen, A.K., 1977, “Rational fools: A critique of the
behavioral foundations of economic theory”
Philosophy and Public Affairs v6(4, Summer): 317344.
Brunnermeier, Markus K., 2009, “Deciphering the
liquidity and credit crunch 2007–2008” Journal
of Economic Perspectives v23(1):77–100
Benjamin J. Keys., B.J., T. Mukherjee, A. Seru & V.
Vig, 2008, “Did securitization lead to lax
screening? Evidence from subprime loans”
Working Paper, London Business School
The economics of the
Snowden, K.A., 1995, “Mortgage securitization in
financial crisis and the
the United States: Twentieth century
role of incentives
developments in historical perspective” Chap 8
in Anglo-American Financial Systems:
Institutions and Markets in the Twentieth
Century edited by Michael D. Bordo and
Richard Sylla New York University 1995
(Richard Irwin Professional Publishing).
Assessing the likelihood
of various future
outcomes from the crisis
Hoshi, T., and A.K. Kashyap, 2010, “Will the US
bank recapitalization succeed? Eight lessons
from Japan” Journal of Financial Economics v97:
398-417.
Further reading to be advised.
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