Hkust Corporate Finance Teaching Note

FINA 4104: Advanced Financial Management
Professor Xuewen Liu
Department of Finance, HKUST
Spring 2013
Email: [e-mail]
Office hour: 13:30-14:30 Tuesday
Assessment: Assignments (12%), Midterm-exam (18%), Projects and presentations
(15%), and Final exam (55%)
Textbooks:
1.
Corporate Finance, by J. Beck and P. DeMarzo, 2nd edition 2011, Pearson
Education, Inc. Hereafter BD.
2.
Financial Markets and Corporate Strategy, by M. Grinblatt and S. Titman, 2nd edition, 2002, Irwin McGraw Hill. Hereafter GT.

I. Introduction to Corporate Finance
1. Corporations (Vs sole proprietorships, partnerships and limited liability companies)
Typical features: Separation of ownership and management
Limited liability
Types: Closed-held companies
Public companies

© Xuewen Liu 2013

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Organizational structure of a typical corporation:

Corporate environment:

Real asset market of business (Real) product

Firm

Financial resource

Operation income

Financial market Payout

“Capital Markets: An Engine for Economic Growth”

© Xuewen Liu 2013

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The relationship between economic efficiency and financial development
(Wurgler (1999))

Finance changes personal wealth

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Volatile banking industry

Financial markets grow faster

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Corporate finance will become important

The international comparison in comparative advantages

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2. Corporate finance
It studies corporate financial decision-making, including investment decision and financing decision.
Investment
Decision

Financing
Decision

Debt
Real asset market of business Financial market Asset
Equity

3. Outline of the course
Foundation of valuation

Firm's investment decision

Firm’s financing decision (capital structure and payout policy)

Investment and financing decision with market frictions
a. tax
b. agency problems
c. information asymmetry

Topics
a.