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Corporate governance and finance

01TUOPH

A.A. 2021/22

2021/22

Corporate governance and finance

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.

Corporate governance and finance

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 their 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 asymmetric information and moral hazard affect the cost of capital for firms and their access to external finance. Then it continues presenting investment decisions under uncertainty, by considering both internal growth opportunities and external growth via 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. This second part illustrates some specific 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. Throughout the two parts of the course, there will be special attention to illustrate how behavioral biases may affect firms' decisions, by using behavioral finance concepts.

Corporate governance and finance

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.

Corporate governance and finance

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 be able to take investment decisions under uncertainty; 3. to evaluate financial call and put options with the Cox-Ross-Rubinstein model; 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 in-depth knowledge of the incentive packages paid to executives and their impact on corporate decisions; 7. to illustrate how the control of the 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 competencies 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.

Corporate governance and finance

Concepts developed in the course “Accounting and Corporate Finance”

Corporate governance and finance

Basic knowledge in corporate budgeting (NPV and IRR rules) and financial accounting. Basic knowledge of math and calculus.

Corporate governance and finance

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.

Corporate governance and finance

The course is divided into two parts. The first addresses both the 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 analyzed 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; dividend policy. 3. Introduction to the real options approach: the valuation of European Call and Put financial options in a binomial tree model; 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. 13. (Common to both parts): the Behavioral Finance view.

Corporate governance and finance

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.

Corporate governance and finance

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. On a voluntary basis, some group discussions about existing Corporate Governance Codes in different countries will be organized at the end of the course.

Corporate governance and finance

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

Corporate governance and finance

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.

Corporate governance and finance

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

Corporate governance and finance

1. Berk, J., and P. DeMarzo, Corporate Finance, IV Global Ed., Pearson Education, Selected Chapters: 14, 15, 16, 20, 21, 22, 23, 24, 28. 2. Larcker, D., and B. Tayan, Corporate Governance Matters, II Ed., Pearson Education, Selected Chapters: 1, 3, 4, 5, 8, 9, 11, 12, 13. 3. Course slides and supplementary readings. Given that this course has been reorganized, there are only a few past exams available. Therefore, exercises and questions similar to the ones proposed at the exam will be discussed during the lectures.

Corporate governance and finance

Modalità di esame: Prova scritta (in aula);

Corporate governance and finance

The exam is based on a written test of 2 hours.

Corporate governance and finance

Exam: Written test;

Corporate governance and finance

The exam is based on a written test lasting one hour and organized through Multiple Choice Questions. The exam will be composed of (a minimum of) 15 to (a maximum of) 22 Multiple Choice Questions. The questions aim to evaluate the students' understanding of the concepts illustrated during the course, their ability to solve simple numerical examples of such concepts, and to critically assess some statements concerning the concepts covered by the course. 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. The questions will be graded in the following way. Each correct answer will receive +2, +1, or +0.5 points, according to its difficulty (the score is indicated together with the text of the question). Each wrong answer receives a penalty equal to -25% of the score of the question (e.g. -0.25 points for a question providing +1 point if answered correctly). Missing answers receive 0 points. The candidate will be allowed to submit only one answer to each question, and the test can be revised after it will be completed, and after the candidate has submitted the final version of his/her test. During the test, the candidate will not be able to access any material: the proctoring system (Respondus) will be activated and a lockdown browser will prevent the use of any application on the personal computer of the candidate. The exam is considered to have succeeded if the candidate obtained a minimum score of 18/30. Explanations over the correct answers will be provided shortly after (one/two days) the exam has taken place.

Corporate governance and finance

Modalità di esame: Prova scritta a risposta aperta o chiusa tramite PC con l'utilizzo della piattaforma di ateneo Exam integrata con strumenti di proctoring (Respondus);

Corporate governance and finance

The exam will be composed of 15-20 Multiple Choice Questions. 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. The questions will be graded in the following way. Each correct answer will receive +1 or +0.5 points, according to its difficulty (the score is indicated together with the text of the question). Each wrong answer receives a penalty equal to -25% of the score of the question (e.g. -0.25 points for a question providing +1 point if answered correctly). Missing answers receive 0 points. The candidate will be allowed to submit only one answer to each question, and the test can be revised after it will be completed, and after the candidate has submitted the final version of his/her test. The test will last one hour. During the test, the candidate will not be able to access any material: the proctoring system (Respondus) will be activated and a lockdown browser will prevent the use of any application on the personal computer of the candidate. The exam is considered to have succeeded if the candidate obtained a minimum score of 18/30. Explanations over the correct answers will be provided shortly after (one/two days) after the exam has taken place.

Corporate governance and finance

Exam: Computer-based written test with open-ended questions or multiple-choice questions using the Exam platform and proctoring tools (Respondus);

Corporate governance and finance

The exam is based on a written test lasting one hour and organized through Multiple Choice Questions. The exam will be composed of (a minimum of) 15 to (a maximum of) 22 Multiple Choice Questions. The questions aim to evaluate the students' understanding of the concepts illustrated during the course, their ability to solve simple numerical examples of such concepts, and to critically assess some statements concerning the concepts covered by the course. 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. The questions will be graded in the following way. Each correct answer will receive +2, +1, or +0.5 points, according to its difficulty (the score is indicated together with the text of the question). Each wrong answer receives a penalty equal to -25% of the score of the question (e.g. -0.25 points for a question providing +1 point if answered correctly). Missing answers receive 0 points. The candidate will be allowed to submit only one answer to each question, and the test can be revised after it will be completed, and after the candidate has submitted the final version of his/her test. During the test, the candidate will not be able to access any material: the proctoring system (Respondus) will be activated and a lockdown browser will prevent the use of any application on the personal computer of the candidate. The exam is considered to have succeeded if the candidate obtained a minimum score of 18/30. Explanations over the correct answers will be provided shortly after (one/two days) the exam has taken place.

Corporate governance and finance

Modalità di esame: Prova scritta a risposta aperta o chiusa tramite PC con l'utilizzo della piattaforma di ateneo Exam integrata con strumenti di proctoring (Respondus);

Corporate governance and finance

See the rules above

Corporate governance and finance

Exam: Computer-based written test with open-ended questions or multiple-choice questions using the Exam platform and proctoring tools (Respondus);

Corporate governance and finance

The exam is based on a written test lasting one hour and organized through Multiple Choice Questions. The exam will be composed of (a minimum of) 15 to (a maximum of) 22 Multiple Choice Questions. The questions aim to evaluate the students' understanding of the concepts illustrated during the course, their ability to solve simple numerical examples of such concepts, and to critically assess some statements concerning the concepts covered by the course. 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. The questions will be graded in the following way. Each correct answer will receive +2, +1, or +0.5 points, according to its difficulty (the score is indicated together with the text of the question). Each wrong answer receives a penalty equal to -25% of the score of the question (e.g. -0.25 points for a question providing +1 point if answered correctly). Missing answers receive 0 points. The candidate will be allowed to submit only one answer to each question, and the test can be revised after it will be completed, and after the candidate has submitted the final version of his/her test. During the test, the candidate will not be able to access any material: the proctoring system (Respondus) will be activated and a lockdown browser will prevent the use of any application on the personal computer of the candidate. The exam is considered to have succeeded if the candidate obtained a minimum score of 18/30. Explanations over the correct answers will be provided shortly after (one/two days) the exam has taken place.

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