Παρουσίαση/Προβολή

(9116) -  SPYROS PAGRATIS

Περιγραφή Μαθήματος

This course examines how firms access external funding in capital and money markets and factors that affect their capital structure decisions, namely the mix of various forms of financing. It also covers topics on investment valuation and capital budgeting decisions by corporates.

The course begins (Section 1) with an in-depth discussion of money-creation in a modern economy and how liquidity conditions in capital and money markets are affected by major asset purchase programs (dubbed as quantitative easing/tightening – QE/QT) and other forms of open market operations by central banks. Special emphasis is placed on the toolkit of policy instruments used by the US Federal Reserve and the European Central Banks targeted to affect the cost of funding in the economy. By completion of this first part of the course students are enabled to navigate in the new era of central banks’ open market operations and identify turning points in central bank policy that may have a profound impact on asset valuations and the cost of corporate financing. 

The second part of the course (Section 2) discusses capital budgeting and business plans. A case study is discussed extensively in class. The third part of the course (Section 3) focuses on the micro-foundations of corporate financing. Using as a starting point the benchmark case of an economy without frictions, it shows that under such circumstances capital structure decisions would be irrelevant for the value of the firm. This, so called Modigliani-Miller (MM) irrelevance proposition, is discussed using basic concepts of real options where students can gain a deeper insight into the valuation of risky-debt and equity. The MM irrelevance proposition is used to guide students’ thinking about the impact of financial transactions, such as share buybacks, on share valuations and the weighted average cost of capital (WACC). Real-world examples are considered where capital markets are subject to distortions and frictions, such as financial distress costs, principle-agent problems, and asymmetric information. The teaching mode is to identify factors of first-order importance that affect capital structure decisions by corporates. Such factors are considered first in isolation, and then think towards an optimal capital structure when different factors interact.

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