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PORTALE DELLA DIDATTICA

Corporate governance and finance

01TUOPH

A.A. 2019/20

Course Language

Inglese

Course degree

Master of science-level of the Bologna process in Engineering And Management - Torino

Course structure
Teaching Hours
Lezioni 40
Esercitazioni in aula 40
Teachers
Teacher Status SSD h.Les h.Ex h.Lab h.Tut Years teaching
Ughetto Elisa Professore Associato ING-IND/35 40 0 0 0 1
Teaching assistant
Espandi

Context
SSD CFU Activities Area context
ING-IND/35
SECS-P/06
4
4
B - Caratterizzanti
C - Affini o integrative
Ingegneria gestionale
Attività formative affini o integrative
2019/20
This course covers intermediate concepts of financial decision making for prospective managers and entrepreneurs taking investment and financial decisions. It also discusses the needs and the functioning of a governance system that prevents abuse by the corporations and its executives and protects shareholders, creditors, employees and other firm stakeholders. The course is divided into two parts. The first part is devoted to a comprehensive view of the providers of finance for entrepreneurial ventures, ranging from business angels, crowdfunding, to venture capital and private equity investors. The course will devote some attention to the recent fintech revolution that is changing the entrepreneurial finance landscape. The second part of the course will present advanced material in corporate finance theory, such as financing decisions in imperfect markets, investment analysis under uncertainty and fundamentals of corporate governance, such as the design of appropriate managerial incentives and takeovers.
This course illustrates intermediated and advanced financial decision making principles for prospective managers and entrepreneurs. It also discusses the needs and the functioning of corporate governance systems that prevent abuse by the corporations and its executives and protect shareholders, creditors, employees and other firm stakeholders. The course is divided into two parts. The first part covers some advanced material in corporate finance. This part first discusses financing decisions in imperfect markets, illustrating how firms raise equity and bonds. Then it continues presenting investment decisions under uncertainty, by considering both internal growth opportunities and external mergers and acquisitions. The second part of the course explains the need and the functioning of a corporate governance system, together with some real world examples of corporate governance codes and regulations. In this second part a special attention is devoted to some governance mechanisms: the design of appropriate managerial incentives, the functioning of the market for corporate control, through takeovers, the role of the Board of Directors and the effects of the ownership structure on corporations’ decisions.
The specific learning outcomes of the course are the following ones: 1. to learn how to evaluate a company, and how to generate a return for limited partners 2. to understand alternative sources of finance for start-ups, depending on the stage of development of the business 3. to understand the functioning of the most established financial alternatives, such as bank finance, venture capital, private equity, secondary markets 4. to provide the theoretical and operational concepts necessary in order to compute the cost of financing in imperfect capital markets and to take an investment decision under uncertainty 5. to understand the functioning and the cost of structural financial decisions such as IPOs and acquisitions 6. to provide an in-depth knowledge of the incentive packages paid to executives and their impact on corporate decisions 7. to illustrate how the control of corporation is contested in the financial markets, and the consequences of this mechanism for the governance of firms At the end of the course, the student will have acquired the methodological and theoretical competences to evaluate the financing and investment opportunities of the firm, the main financial operations on the public markets, and the ways to control the inherent conflicts of interests internal to corporations.
The specific learning outcomes of the course are the following ones: 1. to provide the theoretical and operational concepts necessary in order to compute the cost of finance in imperfect capital markets; 2. to understand the functioning and the cost of structural financial decisions such as IPOs; 3. to be able to take investment decisions under uncertainty; 4. to be able to evaluate the firm external growth opportunities arising through mergers and acquisitions; 5. to understand the need for control mechanisms on the corporations’ activity, in order to protect the firm’ shareholders and stakeholders; 6. to provide an in-depth knowledge of the incentive packages paid to executives and their impact on corporate decisions; 7. to illustrate how the control of corporation is contested in the financial markets, and the consequences of this mechanism for the governance of firms; 8. to know the characteristics of some existing corporate governance codes. At the end of the course the student will have acquired the methodological and theoretical competences to evaluate the financing and investment opportunities of the firm, the main financial operations on the public markets, and the ways to control various conflicts of interests internal to corporations.
Concepts developed in the course “Accounting and Corporate Finance”
Basic knowledge in corporate budgeting (NPV and IRR rules) and financial accounting. Basic knowledge of math and calculus.
The first part of the course offers a comprehensive view of the providers of finance for entrepreneurial ventures. The course is covering why Venture Capital and Private Equity investors are better equipped to provide finance to such companies than traditional providers, such as banks. The course will consider alternative sources of finance, depending on the stage of development of the business and will discuss how in recent years the fintech revolution is shaping entrepreneurial finance and allowing companies to raise money in innovative ways. For each topic, theoretical argumentations will be covered, but also recent trends and figures will be analysed and real cases will be discussed. The second part of the course will address both financing and investment decisions of the firm, and explain why corporate governance matters for managing firms. This second part starts presenting the methods of firm financing in presence of transaction costs, agency costs and asymmetric information. Then it covers real options techniques for the firm investment decisions under uncertainty. Finally, it shows the importance of governance systems, which are based on internal and external control mechanisms. The main governance tools, such as the design of top-management compensation, the role of active shareholders and of the Board of Directors, are covered. This part concludes illustrating the functioning of the market for corporate control.
The course is divided into two parts. The first addresses both financing and investment decisions of the firm. The second part shows the importance of governance systems and their main internal and external mechanisms. For each topic, theoretical argumentations will be covered, but also recent trends and figures will be analysed together with some real cases. The detailed syllabus is the following. Corporate Finance (first part): 1. Financing decisions of the firm in frictionless markets; 2. Financing decisions of the firm in imperfect markets: bankruptcy costs, agency costs of debt and agency costs of equity, firm financing under asymmetric information; 3. Raising equity: IPOs and SEOs; 4. Raising bonds; 5. Introduction to the real options approach: the valuation of Call and Put financial options; 6. Investment decisions of the firm: internal investment using the real options approach; 7. Investment decisions of the firm: external investment through M&As; Corporate Governance (second part): 8. Why do we need a governance system 9. Internal governance mechanisms: managerial compensation, ownership structure and the role of the Board of Directors; 10. External governance mechanisms: takeovers and the market for corporate control; 11. Shareholders and stakeholders protection; 12. Existing Corporate Governance Codes: some real cases.
The lectures will be “interactive” in that the instructor will periodically ask students to pause the presentation and make classroom exercises on the different modules taught.
The lectures will be “interactive” in that the instructor will periodically ask students to pause the presentation and make classroom exercises on the different modules taught.
First part: 1. Bootstraping and debt finance 2. An overview of Private Equity and Venture Capital: the role of PE and VC in the entrepreneurial finance ecosystem, history, legal and fiscal frameworks, market trends and figures, in Europe and in the USA 3. Venture Capital financing: the VC cycle, fundraising, investing, contracting, monitoring, exiting 4. Venture Capital valuation techniques 5. Later stage Private Equity 6. Other equity investors: corporate venture capital investors, governmental and bank-affiliated venture capital investors, university-affiliated venture capital investors 7. Business angels 8. Fintech revolution: crowdfunding, peer to peer lending and ICOs Second part: 1. Financing decisions of the firm in frictionless markets 2. Financing decisions of the firm in imperfect markets: bankruptcy costs, agency costs of debt and agency costs of equity, firm financing under asymmetric information 3. Raising equity: IPOs and SEOs 4. Investment decisions of the firm: internal investment using the real options approach 5. Investment decisions of the firm: external investment through M&As 6. Corporate Governance: definitions and why do we need a governance system 7. Internal governance mechanisms: managerial compensation, ownership structure and the role of the Board of Directors 8. External governance mechanisms: takeovers and the market for corporate control
The course is organized into lectures and exercise sessions. The exercises will be used as examples in the development of each topic as will as at the end of the two parts. The slides of the course and the exercises with solutions will be published on the portal. Real world applications and case studies concerning some existing Governance Codes will also be presented during the lectures.
First part: 1. Metrick A., Yasuda A. Venture Capital and the Finance of Innovation, Wiley (2010) 2. Prahl M., White B., Zeisberger C. Transformation via Private Equity, Venture Capital, Minority investments and Buyout, Wiley (2017) 3. Course slides and supplementary readings Second part: 4. Berk, J., and P. DeMarzo, Corporate Finance, IV Global Ed., Pearson Education, Selected Chapters: 14-15-16-22-23-28. 5. Copeland,T. E., J. F. Weston and K. Shastri, Financial Theory and Corporate Policy, Pearson Education, Selected Chapters: 9-18 6. Larcker, D., and B. Tayan, Corporate Governance Matters, II Ed., Pearson Education, Selected Chapters: 3-4-5-7-8-9-11-12 7. Slides Integration
1. Berk, J., and P. DeMarzo, Corporate Finance, IV Global Ed., Pearson Education, Selected Chapters: 14-15-16-22-23-28. 2. Larcker, D., and B. Tayan, Corporate Governance Matters, II Ed., Pearson Education, Selected Chapters: 3-4-5-7-8-9-11-12. 3. Course slides and supplementary readings. Given that this course has been reorganized, there are only few past exams available. Therefore, exercises and questions similar to the ones proposed at the exam will be discussed during the lectures.
Modalità di esame: Prova scritta (in aula);
The exam is based on a written test of 2 hours.
Exam: Written test;
TThe exam is based on a written test. The exam lasts 2 hours and it consists of four open questions (two on the first part of the course, and two on the second part). The weight of each question will be written next to the question text, with more complex questions weighing more. Exam questions can be of two types. (1) Open questions intended to assess the knowledge of (some of) the topics illustrated during the course; (2) Numerical exercises similar to the ones solved during the lectures and at the end of the course. Examples of both types of questions will be discussed at the end of each part of the course. During the exam it is permitted to use a non-programmable calculator. Writing paper, including sketch paper, will be provided. The consultation or use of any kind of material (e.g., textbooks, lecture notes, slides) during the exam is strictly forbidden. Any form of communication is strictly forbidden, as well as the use of mobile phones, personal computers, tablets or any electronic device other than the calculator. The solutions to the exams will be published jointly with the results and with date of the inspection of the exams. No oral exam is foreseen.


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