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UNIVERSITI TEKNOLOGI MARA COURSE INFORMATION CONFIDENTIAL CODE COURSE LEVEL CREDIT UNIT CONTACT HOUR PART : 1 COURSE

STATUS PRE-REQUISITE COURSE OBJECTIVES : The primary objective of this course is to provide an advanced discussion of some of the theoretical and empirical literature relating to the corporate’s financial policies and strategies. At the end of this course the student should be able to:   appreciate the understanding of the setting of an ideal capital market as well as the asset pricing models analysed within this setting understand how the real-world factors like principal-agent conflicts, information asymmetry between the management and investors affects the firm’s financial policies understand how the real-world factors affects the capital structure of firm. employ different techniques of valuation of a firm’s equity understand the mechanics of dividend payments and stock repurchases as well as the theory and empirical evidence pertaining to the firm’s financial policies. : CORE : NONE : FMC 700 : CORPORATE FINANCIAL STRATEGY : MASTER : 3 : 3

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___________________________________________________________________ Fakulti Perakaunan 2004 Sarjana Perakaunan © Hak Cipta Universiti Teknologi

We first discuss the effects of principal-agent conflicts among the stakeholders on the firm’s financial policies. Principal-Agent Conflicts and Financial Policies Introduction Real-World Factors: Violations of Ideal Capital Market Assumptions Limited Liability and the Separation of Ownership and Control The Critical Role of Management in a firm with Diffuse Ownership The Classic Directive to Management: Maximise the Firm’s Market Value  Extended Stakeholders. The introductory chapter provides a review of the theory on the effects of corporate financial decisions in an ideal capital market. We then discuss the problem of information asymmetry between the management of publicly traded firm and outside investors on the firm’s policies. Separation of Ownership and Control. risk and value. the two principal means by which the firms distributes cash to its shareholders.     . Conflicts of Interest. Contracts and a Revised Directive: Maximise the Market Value of Equity Managers as Extended Stakeholders: Agency Costs of Managerial Discretion Information Asymmetry and the Markets for Corporate Securities Introduction  The Basic Cause of Information Asymmetry in the Markets for Corporat Securities  The Valuation of Publicly Traded Equity under Asymmetric Information: An Illustration Information Asymmetry and the Quality of the Market for a Firm’s Equity Optimal Ownership Structure Under Asymmetric Information: Leland and Pyle Information Asymmetry and External Financing ___________________________________________________________________ Fakulti Perakaunan 2004 Sarjana Perakaunan © Hak Cipta Universiti Teknologi       3. SYLLABUS CONTENTS : 1.      Valuation and Financing Decisions in an Ideal Capital Market Introduction Defining an Ideal Capital Market Modigliani and Miller’s Propositions on the Irrelevance of Capital Structure Miller and Modigliani on the Irrelevance of Dividend Policy The Capital Asset Pricing Model 2. The event study and the different techniques and models for the valuation of a firm’s equity are examined to help the manager to address the problem of designing the firm’s financial policies. Lastly. The impact of various real-world factors on a firm’s leverage is also being discussed. we focus on firm’s policies regarding cash dividends and stock repurchase.COURSE DESCRIPTION : This course provides an advanced discussion of some of the theoretical and empirical literature on corporate financial policies and strategies. The subsequent chapters then analyse the principal real-world factors that affect a firm’s financial policies.

 . There will be a strong emphasis on the use of case studies and project work to illustrate and apply the theories and concepts.       6.        5. Event Studies.          7. Cost of Equity Capital and Equity Valuation Introduction The Efficient Market Hypothesis  Information Asymmetry. Information Asymmetry and Dividend Policy  The Compound Problem: Principal Agent Conflicts and Information Asymmetry The Leverage Decision Introduction Modifying the Original M&M Propositions to Account for Corporate Taxes The Traditional Trade-off Theory Empirical Evidence on the Traditional Trade-off Theory Agency Theory and Leverage Decision Asymmetry Information and Leverage A Third Trade-off Model Market Efficiency. ASSESSMENT : ___________________________________________________________________ Fakulti Perakaunan 2004 Sarjana Perakaunan © Hak Cipta Universiti Teknologi 4. Security Analysis and Limitations on Market Efficiency Event Studies: Gauging the Value of New Information Results of Selected Event Studies The Cost of Equity Capital Basic Equity Valuation Models Dividend Policy and Stock Repurchases Introduction The Irrelevance of Dividends and Stock Repurchases in an Ideal Capital Market Types of Dividends and the Dividend Payment Process Dividends versus Earnings: The Smoothing Phenomenon Dividends and Principal-Agent Conflicts Information Asymmetry and Signalling with Dividends The Information Content of Dividend Changes Stock Repurchases: A Brief on Mechanics and Effects Stock Repurchases versus Dividends Risk Management Derivatives and Related Contracts TEACHING METHODOLOGY : The paper will be delivered in the form of lectures and tutorial.

3 in a group) 1 mid-term test Final exam TOTAL RECOMMENDED TEXT : 30% 20% 15% 35% 100% Joseph P. 2002. Frank C. Theory and Practice. Ogden. O’Connor. Research Methods in Accounting. (2003). Brigham and Michael C. Smith. Jen and Philip F. Policies and Strategy. Financial Management. M. REFERENCES : 1. Eugene F.Essay writing/Research Paper * (Individual) 4 case studies write-up (2 . Ehrhardt. South Western. 11th Edition. London: Sage. Prentice Hall. Thomson. ___________________________________________________________________ Fakulti Perakaunan 2004 Sarjana Perakaunan © Hak Cipta Universiti Teknologi . Advanced Corporate Finance.