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EC334: Topics in Financial Economics: Corporate Finance and Markets

  • Jonathan Cave

    Module Leader
15 CATS - Department of Economics
Spring Module

Principal Aims

The module aims to develop the general intellectual abilities in understanding the roles of capital markets, corporate policy and governance, and the causes for the financial crises. It also introduces the subject specific technical skills in finance and financial policy for firms. The aims of the module are to equip students with an understanding of fundamental concepts in modern finance and corporate finance; to develop a range of appropriate analytical skills, including dynamic and theoretic methods; to develop in students the capacity to apply analytical techniques to real world problems.

Principal Learning Outcomes

By the end of the module students will have acquired basic understanding of the roles of the capital markets, corporate financial policy and corporate governance and how financial crises arise. They are also expected to demonstrate subject-specific technical skills in asset valuation and some simple game-theoretical methods.

Syllabus

The module will typically cover the following topics:

Weeks 1-3 Basics

1. Real options (CWS 9)

a. Valuing simple real options

b. Valuing compound options

2. The efficient markets hypothesis (CWS 10-11)

a. Market efficiency and the value of information

b. Rational expectations

c. Testing the EMH

3. Hidden information and Hidden Actions (CWS 12)

a. Basic problem

b. Contract theory

c. Signalling

Weeks 4-5 Corporate Financial Policy

1. The role of the CFO and other executives (CWS 13)

2. Capital structure – the first Modigliani-Miller Theorem (CWS 15)

3. Pay-out policy (CWS 16)

Weeks 6-8 Applying the theory

1. Choice of projects by firms – (risk-shifting, debt overhang)

2. Executive compensation and managerial effort

3. Competition and efficiency

4. Changes in structure including M&A (CWS 18)

Weeks 9-10 Topics

1. Automated financial markets

2. The wisdom of crowds? Pricing uncertainty

Context

Optional Module
LM1D (LLD2) - Year 3, L116 - Year 3, V7ML - Year 3, LA99 - Year 3, L100 - Year 3, L1L8 - Year 3, R9L1 - Year 4, R3L4 - Year 4, R4L1 - Year 4, R2L4 - Year 4, R1L4 - Year 4, V7MM - Year 4, V7MP - Year 3, L1P5 - Year 1, L1PA - Year 1, V7MR - Year 3, LM1H - Year 4, GL12 - Year 4, GL11 - Year 3, L103 - Year 4
Pre or Co-requisites
EC202 or EC204 or EC220 AND EC333 or IB253 or ST339
Restrictions
You may not take this module if you have taken (or are taking) IB254 Not available to non-final year students on Economics-based degrees.
Part-year Availability for Visiting Students
Available in the Spring term only (1 x essay - 12 CATS) and in the Spring and Summer terms together (1 x essay and 1 x 2 hour exam – 15 CATS)

Assessment

Assessment Method
Coursework (20%) + 2 hour exam (80%)
Coursework Details
One assignment (2000-word essay) (20%)
Exam Timing
May/June

Exam Rubric

Time Allowed: 2 hours

Answer ONE question from SECTION A (50 marks) and ONE question from SECTION B (50 marks). All questions carry equal marks. Answer Section A questions in one booklet and Section B questions in a separate booklet.

Approved pocket calculators are allowed.

Read carefully the instructions on the answer book provided and make sure that the particulars required are entered on each answer book. If you answer more questions than are required and do not indicate which answers should be ignored, we will mark the requisite number of answers in the order in which they appear in the answer book(s): answers beyond that number will not be considered.

Previous exam papers can be found in the University’s past papers archive. Please note that previous exam papers may not have operated under the same exam rubric or assessment weightings as those for the current academic year. The content of past papers may also be different.

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