This module aims to develop an understanding of how firms raise external finance and design their capital structure.
We also look at how real investments are valued and how corporations interact with financial markets. In particular, we will be looking into how firms make financial decisions.
We will examine the assumption that a firm’s cash flows are exogenous with respect to financial decisions.
Also studied are the Modigliani-Miller theorems stating which conditions make capital structure irrelevant, and derive the optimal debt/equity mix in the presence of taxes and costly bankruptcy.
The rest of the module addresses the issue of how a firm’s financial and governance structure affects its value once information problems between firms’ insiders and investors are taken into account.