Advanced Corporate Finance

The first book devotedexclusivelyto modern advanced corporate finance, this volume provides a comprehensive exploration of theoretical and empirical literature on corporate financial policies and strategiesparticularly those of U.S. nonfinancial firmsdefined in rational, economic terms. Throughout, Cases in Point show theory in relation to financial decisions made by specific firms; andReal-World Focushighlights numerous articles from the financial press, providing insights from practitioners' points of view.Empirical Perspectives On The Financial Characteristics Of Publicly Traded U.S. Nonfinancial Firms. Valuation And Financing Decisions In An Ideal Capital Market. Separation Of Ownership And Control, Principal-Agent Conflicts, And Financial Policies. Information Asymmetry And The Markets For Corporate Securities. The Roles Of Government, Securities Markets, Financial Institutions, Ownership Structure, Board Oversight, And Contract Devices. The Leverage Decision. Analyses Of The Firm And The Valuation Of Equity And Debt. Industry Analysis And Financial Policies And Strategies. The Firm's Environment, Governance, Strategy, Operations, And Financial Structure. Market Efficiency, Event Studies, Cost Of Equity Capital, And Equity Valuation. Corporate Bonds: Terms, Issuance, And Valuation. Private Equity And Venture Capital. Initial Public Offerings Of Stock. Managing Internal Equity And Seasoned Equity Offerings. Dividend Policy And Stock Repurchases. Corporate Liabilities: Strategic Selections Of Lenders And Contract Terms. Mergers, Acquisitions, Takeovers, And Buyouts. Financial Distress And Restructuring. Debt Restructuring, Being Acquired, Bankruptcy, Reorganization, And Liquidation. Organizational Architecture, Risk Management, And Security Design.For CEOs and CFOs of corporations, senior lending officers at commercial banks, and senior officers and analysts at investment banks.

Frank C. Jen is M&T Chair Professor in Banking (emeritus) at the University at Buffalo, SUNY.

This textbook provides an advanced, organized, and comprehensive discussion of theoretical and empirical literature on corporate financial policies and strategies, particularly those of U.S. nonfinancial firms. The textbook is written for use in an advanced MBA or advanced undergraduate course in corporate finance. The text is essentially the first to address, on an organized, comprehensive, and focused basis, the needs of students to acquire a thorough understanding of corporate financial policies and strategies. We define corporate financial policies and strategies broadly to include not only managerial decisions regarding the issuance and retirement of debt and equity securities and the firm''s overall capital structure,but also decisions regarding issues such as (a) the firm''s governance and ownership structures; (b) contracting between a firm and its management, creditors, and other stakeholders;(c) dividends and stock repurchases; (d) mergers, acquisitions, takeovers, buyouts, equity carve-outs, and spin-offs; (e) financial distress and its resolution; and (f) risk management and the design of securities. The text focuses early and often on theories that have been developed to explain a firm''s corporate financial policies and strategies in rational, economic terms. We also discuss a plethora of empirical studies that have been conducted to test these theories. We occasionally illustrate theory by referring to financial decisions made by a specific firm. From an introductory corporate finance textbook such as Corporate Financial Management(Emery and Finnerty; Prentice Hall, 1997), Principles of Corporate Finance(Brealey and Myers, 6th ed.; McGraw-Hill, 2000), or Corporate Finance(Ross, Westerfield, and Jaffe; McGraw-Hill, 2002), students come to understand that in the modern theory of corporate finance, shareholders'' dictum to the firm''s management is to maximize the market value of the firm''s equity. Students also learn that management must undertake two principal tasks to achieve this objective: (a)Develop and monitor profitable capital investment projects. (b)Secure and manage the capital necessary to pursue these projects. However, the dictum to maximize value leads to a large number of fundamental questions, including, but not limited to, the following: Will the firm''s management adhere to this dictum, or will they engage in self-serving, value-reducing behavior? (Alternatively stated, how can shareholders induce management to adhere to this dictum, and at what cost?) If we assume that management is willing to adhere to the dictum, specifically howdo they accomplish the task of maximizing the market value of the firm''s equity? Are there important interactions between a firm''s capital investment decisions and its financing decisions, and if so, what are these interactions and how do firms deal with them? The treatment of such issues in an introductory corporate finance text tends to be broad, rather than deep, for several reasons: (a) An introductory text must introducebasic aspects of both investment and financing decisions in some detail; (b) students also must become familiar with numerous ancillary topics related to financial markets, basic capital budgeting decisions, the basic roles of financial institutions, and working capital management; (c) breadth, rather than depth, often must be emphasized for the sake of nonfinance students, because the introductory course may be the only finance course they take; and (d) corporate finance theory, as it relates to both capital investment and financing decisions, has developed such depth and breadth that it cannot be fully addressed in an introductory course. For example, in an introductory corporate finance course, a student learns that alt important decision for a firm is the determination of its optimal capital structure(i.e.. the proportions of debt and equity that should be used to finance the firm''s assets). The student may learn that taxes and costs of financial distress may influence the capital structure decision. However, the typical student is unlikely to develop an understanding of other factors that affect this decision, such as agency costs of debt, agency cost", of managerial discretion, and information asymmetry. The student may also only begin to understand that a firm''s financial policies are likely to interact with other aspects of the firm, such as the industry in which it operate,,, and the nature of its assets. Moreover, an introductory course generally offers a student only a glimpse of the complex financial structures that are characteristic of large firms, as well as the complexity of executive compensation contracts and corporate debt contracts, and the firm''s need to manage risk. For these reasons, most major business schools include advanced courses in corporate finance in their MBA or undergraduate finance curricula. These advanced course often focus separately on capital investment and financing decisions. Unfortunately, at this point the availability of textbooks breaks down. Indeed, only recently has am advanced textbook been written to address capital investment decisions, Valuation: Measuring and Managing the Value of Companies(Copeland, Koller, and Murrin, 3rdi ed.; John Wiley & Sons, 2000), and no advanced textbook presently exists that focuses exclusively on corporate financial policies and strategies at an advanced level.) Among; the most recent textbooks, Financial Markets and Corporate Strategy(Grinblatt and) Titman; McGraw-Hill, 1997) claims to have goals similar to those of this text. As the; authors state, their text "provides an in-depth analysis of financial theory, empirical work, and practice. It is primarily designed as a text for a second course in corporate: finance for MBAs and advanced undergraduates" (p. viii). However, most of the chapters in their text are devoted to reviewing and perhaps slightly expanding or refocusing; material covered in an introductory text, so they ultimately fall short in providing a. truly advanced and comprehensive treatment of corporate financial policies and strategies. Indeed, the bulk of their text resembles an introductory text, as the authors admit: "we also envision this as a textbook for a first course in finance for highly motivated students with some previous finance background" (p. viii). Due to the dearth of textbooks designed exclusively for an advanced course on corporate financial policies and strategies, professors often use an introductory corporate finance text as a reference text, from which they can at least promote a discussion of many specific advanced issues. They then typically supplement this discussion with class notes, journal articles, or perhaps books such as The Revolution in Corporate Finance(Stern and Chew, 3rd ed.; Blackwell, 1998), Takeovers, Restructuring, and Corporate Governance(Weston, Chung and Siu, 3rd ed.; Prentice Hall, 2001), The Modern Theory of Corporate Finance(Smith, 2nd ed.; McGraw-Hill, 1990), or The New Corporate Finance(Chew, 2nd ed.; McGraw-Hill, 1999). Indeed, the authors of this textbook have developed extensive class notes for our advanced course on corporate financial policies and strategies over several years, and have now organized and expanded these notes into a textbook. The advantage of having a full textbook to address advanced issues in corporate finance is that it provides the student with an organized, comprehensive, and understandable treatmentof the issues, as opposed to the fragmented treatment that results from cobbling together notes, articles, or readings on individual topics. In addition, our survey of advanced corporate finance courses taught at major universities indicates that in many cases the course is often narrow in scope (e.g., focusing o