Dr M Verardo, OLD 4.24 and Dr J Favilukis, OLD M2.14

Optional for BSc Accounting and Finance, BSc Economics, BSc Econometrics and Mathematical Economics, BSc Management and BSc Management Sciences. Available as an outside option. Available to General Course students.

Principles of Finance, including both asset markets and corporate finance (FM212 or equivalent course).

This course is intended for third-year undergraduates and will be a broad-based follow-up to FM212 Principles of Finance. The goal is to broaden, and selectively deepen, students' understanding of finance, building on their existing knowledge of financial economics. The course will cover a broad range of topics, with both a theoretical and an empirical emphasis. These include topics in corporate finance, investments and performance evaluation and international finance

The course consists of two interchangeable ten-week components, one on investments and international finance, and the other on corporate finance.

The first component provides students with a way of thinking about and framing investment decisions by examining the empirical behaviour of security prices. We first study the empirical evidence of the CAPM and other asset pricing models, and then analyze different tests of market efficiency focusing on event studies, investment anomalies and behavioural finance. Finally, this part of the course illustrates techniques of performance evaluation and attribution and, after introducing elements of international finance, explores issues related to international portfolio management.

The second component of the course examines theory and evidence concerning major corporate financial policy decisions. We focus particularly on the firm's decision to finance with debt vs. equity, the impact of taxes on such decisions, and the role of dividends. We will begin with the Modigliani and Miller proposition and discuss the firm's choice to raise capital using debt versus equity and the firm's choice to payout earnings using dividends versus repurchases. We will analyze the impact of taxes, financial distress, and asymmetric information on such decisions. We will also cover optimal managerial compensation, take on the role of the policy maker to learn about corporate governance mechanisms and discuss some recent corporate scandals. Finally, we will review empirical evidence from a wide range of international sources to support or refute the theories we discussed.

40 lectures of one-hour each in MT and LT, and 20 classes of one-hour in MT, LT, and ST. Classes start in week three of MT.

Students are expected to produce written work for classes and to make positive contributions to class discussions.

Detailed course programmes and reading lists are distributed at the start of the course. Illustrative texts include: Bodie, Kane & Marcus, Investments (Irwin) and Grinblatt & Titman, Financial Markets and Corporate Strategy (Irwin, McGraw-Hill).

A three-hour written examination in the ST.