Corporate finance

The course deals with various aspects of financing and managing companies, primarily in the form of corporations. The theoretical basis in financial theory is that of the perfect capital market and symmetrical information where a corporate decision of financing method and/or dividend decision do not affect its market value. This theory does not explain, however, a number of patterns in which companies choose their financial structure and therefore it needs to be modified. Primarily, it is the consequences of asymmetrical information that make the financial choice interesting and important and the foundational theory is modified to account forthis. Another important explanatory factor of corporate capital structure decisions is the conflict of interest arising between different financiers, primarily loan-givers and shareholders. Shareholders can take precautions that are unfavourable to loan-givers who try to protect themselves through detailed contract clauses. This discussion of classic issues in the field is followed by a focus on management and ownership issues. With spread ownership, the owners lose direct control of the corporation, which is handed over to an employed management team and above all the CEO. Maximizing corporate profit or market value is not a self-evident goal for the management, which creates a conflict between shareholders and management. Different theories of corporate ownership structure and the relation to its market value are discussed. A third issue is the reasons for and effects of fusions and takeovers. The problem of ownership and management are also features in such contexts as many takeovers are made by independent managements without consideration of the shareholders' interests. Related phenomena such as "hostile" takeovers or management buy-outs are discussed. The course concludes with a discussion of how companies in general should be organised to motivate employees, especially the management level, to act in the interest of the owners. This discussion is integrated with the earlier analysis of finance and capital structure decisions.