ECO422 Advanced Corporate Finance

• Topics

  This course is a link between fundamental corporate finance and the more specialized courses in corporate finance. The overall aim is to give the student deeper insight into important key topics within corporate finance. The specific topics are listed below:

  1. Capital Structure

  a. Classical Theory

  b. Leverage, betas, and option pricing

  c. Asymmetric information

  d. Incentives

  e. Real options (using binomial option pricing)

  f. Empirical evidence

  2. Earnings and Dividends

  a. Classical theory

  b. Earnings and dividend growth models

  c. Stock market predictability using earnings, dividends, etc.

  3. Incomplete Information and Moral Hazard

  a. Adverse Selection (Signaling)

  b. Moral Hazard (Asset Substitution, Cross-collateralization)

  c. Agency (Free cash flow, managerial incentives)

  d. Disclosure

  e. Delegated monitoring (arms-length versus bank financing)

  f. Security Design (information sensitivity)

  4. Further Topics (examples)

  a. Mergers and acquisitions, tender offers

  b. Corporate governance

  c. Corporate Social Responsibility & Business Ethics

  d. Optimal bankruptcy procedures

  e. Internal capital markets

  f. Incomplete contracts

  g. Current events and consequences

  h. Theory of the firm, possibly including DeFi, FinTech

  i. New research relevant to corporate finance

  j. Additional topics as time allows

  In addition to these topics, there may be brief reviews binomial option pricing and game theory.

• Learning outcome

  After completing this course, students will in terms of knowledge

  • have an overview over standard theories and models of corporate finance
  • understand the key driving forces in important models in corporate finance, including:

  - understand the problems caused by asymmetric information and adverse selection

  - understand the problems caused by moral hazard and agency relationships

  - understand (and be able to discuss) various means of handling the problems raised by asymmetric information and moral hazard

  In terms of skills, students will

  • have a critical view of, and be able to discuss, theoretical issues in corporate finance and related current events
  • have developed basic skills in criticizing theory and in applying theory to analyze problems in corporate finance
  • be able to use binomial option pricing, game theory, and additional methods to analyze models in corporate finance

• Teaching

  Lectures.

• Required prerequisites

  To take this course you should already have skills in

  • game theory similar to those obtained in ECO400
  • and skills in introductory corporate finance similar to those obtained in FIE402.

• Credit reduction due to overlap

  None.

• Compulsory Activity

  To complete this course and take the final exam, students must first fullfill compulsory activities (home work assignments).

  Course approval from previous semester is still valid

• Assessment

  Written individual 4 hour school exam (analogue/pen and paper). Must be written in English.

• Grading Scale

  A - F.

• Computer tools

  Statistical software may be used (e.g. Eviews, Matlab, Stata)

• Literature

  Textbook: Copeland, T. S., Weston, F., & Shastri, K. (2005), "Financial Theory and Corporate Policy," Fourth Edition, Addison Wesley, ISBN 0-321-22353-5.

  Required Readings

  Further readings will be announced during the semester in addition to the following:

  Capital Structure:

  Copeland, T. S., Weston, F., & Shastri, K. (2005), "Financial Theory and Corporate Policy," Fourth Edition, Addison Wesley, Chapter 12 & 15 (12 & 14 in 4th edition dated (2014)).

  Jensen, M.C. (1986), "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers" The American Economic Review, Vol. 76, No. 2, Papers and Proceedings of the Ninety-Eighth Annual Meeting of the American Economic Association, pp. 323-329.

  Jensen, M. C. & Meckling, W. H. (1976), "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure," Journal of Financial Economics 3, p. 305-360.

  Miller, M. H. (1977), "Debt and Taxes," Journal of Finance 32 (2), p. 261-275.

  Myers, S. C. & Majluf, N. S. (1984), "Corporate Financing and Investment Decisions when Firms Have Information that Investors Do Not Have," Journal of Financial Economics 13, p. 187-221.

  Dividend Policy, Earnings and Dividends Modeling

  Copeland, T. S. & Weston, F., (2005), Chapter 16 (15 in 4th edition dated (2014)).

  Mergers & Acquisitions

  Copeland, T. S. & Weston, F., (2005), Chapter 18 (17 in 4th edition dated (2014)).

  Grossmann, S.J. & Hart, O.D. (1980), "Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation," The Bell Journal of Economics, Vol. 11, No. 1. (Spring), pp. 42-64.

  Additional Required Readings are likely to be included, and vary from semester to semester.

• Permitted Support Material

  Calculator

  One bilingual dictionary (Category I)

  All in accordance with Supplementary provisions to the Regulations for Full-time Study Programmes at the Norwegian School of Economics Ch.4 Permitted support material https://www.nhh.no/en/for-students/regulations/https://www.nhh.no/en/for-students/regulations/and https://www.nhh.no/en/for-students/examinations/examination-support-materials/https://www.nhh.no/en/for-students/examinations/examination-support-materials/