Financial Markets and Corporate Finance

Financial Markets and Corporate Finance

Year: 2018-2019
Course code: ECON4013
Course credits: 15
Taught: Semester 2
Course co-ordinator: Dr Marina Spaliara
Entry requirements: Normally admission to an honours programme in Economics.
Available to visiting students:Yes
Contact for more informationGillian Weir

Course description

This is a 15 credit course which consists of four parts. The first part (lectures 1-10) analyses the key concept of the Efficient Markets Hypothesis (EMH) and explains the basic concepts that underlie dividend policy choice and the capital structure decisions of the firms. This analysis is necessary in order to assess how much compensation should shareholders receive and whether the choice of debt to equity mix matters. Furthermore, we explain the sources and patterns of corporate financing and present an overview of the process involved in raising capital. Further, published papers related to corporate financing and in particular, firms’ real decisions under capital market imperfections are presented and discussed. The second part (lectures 11-16) discusses mergers and acquisitions; CAPM; and credit ratings. The third part (lectures 17-19) focuses on the role of the financial system. We provide an overview of the UK and the international financial market, how they operate and the issues of financial innovation and regulation in these markets. Finally, in lecture 20 we revise the key points of the course.

Learning and teaching methods

20 hours of lectures (10 x 2 hours), Thursday, 2.00-4.00 pm, and 4 1-hour tutorials (held fortnightly at varying times).

Course texts

  • Benito, A and I. Hernando. (2007).'Financial Pressure and Firm Behavior in Spain'. Bulletin of Economic Research, 59, 283-311.
  • Bodie, Z., Kane, A., and Markus A., (2008). Investment, 7th Edition, McGraw-Hill.
  • Brealey, R. A., Myers, S.C. and Allen, F.A. (2008). Principles of Corporate Finance, 10th Edition, McGraw Hill. 
  • Farinha, M. and Santos, J.: (2006), 'The survival of start-ups: Do their funding choices and bank relationships at birth matter?', Mimeo.
  • Fazzari, S., Hubbard, G., and B. Petersen (1988), 'Financing constraints and corporate investment.' Brookings Papers on Economic Activity, 1, pp. 141-95.
  • Guariglia (2008), ‘Internal funds, asymmetric information, and investment choice: Evidence from a panel of UK firms'. Journal of Banking and Finance, 32, pp. 1795-1809.
  • Hillier, D., Clacher, I., Ross, S., Westerfield, R. and Jordan B. (2011). Fundamentals of Corporate Finance, McGraw-Hill. 
  • Howells, P. and Bain, K. (2008). The Economics of Money, Banking and Finance, 4th Edition, Prentice Hall. 
  • Howells, P. and Bain, K. (2007). Financial Markets and Institutions, 5th Edition, Prentice Hall.
  • Kaplan, S. and L. Zingales (1997), 'Do investment-cash-flow sensitivities provide useful measures of financing constraints?' Quarterly Journal of Economics, 112, pp. 169-216.
  • Modigliani, F and Miller, M.H.,(1958),  ‘‘The cost capital corporation finance and the theory of investment’’,  American Economic Review, 48(3).
  • Nickell, S. and D. Nicolitsas. (1999). “How Does Financial Pressure Affect Firms?” European Economic Review, 43, 1435-56.
  • Shleifer, A. (2000). Inefficient Markets: An Introduction to Behavioural Finance, Oxford University Press.

Assessment

 An in-course assignment (30%)
A 2-hour degree exam (April/May) (70%)