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 corporates 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 firms financial policies understand how the real-world factors affects the capital structure of firm. employ different techniques of valuation of a firms equity understand the mechanics of dividend payments and stock repurchases as well as the theory and empirical evidence pertaining to the firms financial policies. : CORE : NONE : FMC 700 : CORPORATE FINANCIAL STRATEGY : MASTER : 3 : 3

___________________________________________________________________ Fakulti Perakaunan 2004 Sarjana Perakaunan Hak Cipta Universiti Teknologi

COURSE DESCRIPTION : This course provides an advanced discussion of some of the theoretical and empirical literature on corporate financial policies and strategies. The introductory chapter provides a review of the theory on the effects of corporate financial decisions in an ideal capital market. The subsequent chapters then analyse the principal real-world factors that affect a firms financial policies. We first discuss the effects of principal-agent conflicts among the stakeholders on the firms financial policies, risk and value. We then discuss the problem of information asymmetry between the management of publicly traded firm and outside investors on the firms policies. The impact of various real-world factors on a firms leverage is also being discussed. The event study and the different techniques and models for the valuation of a firms equity are examined to help the manager to address the problem of designing the firms financial policies. Lastly, we focus on firms policies regarding cash dividends and stock repurchase, the two principal means by which the firms distributes cash to its shareholders. SYLLABUS CONTENTS : 1.

Valuation and Financing Decisions in an Ideal Capital Market Introduction Defining an Ideal Capital Market Modigliani and Millers Propositions on the Irrelevance of Capital Structure Miller and Modigliani on the Irrelevance of Dividend Policy The Capital Asset Pricing Model 2. Separation of Ownership and Control, 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 Firms Market Value Extended Stakeholders, 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 Firms 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.

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, Event Studies, Cost of Equity Capital and Equity Valuation Introduction The Efficient Market Hypothesis Information Asymmetry, 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. There will be a strong emphasis on the use of case studies and project work to illustrate and apply the theories and concepts. ASSESSMENT :
___________________________________________________________________ Fakulti Perakaunan 2004 Sarjana Perakaunan Hak Cipta Universiti Teknologi

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Essay writing/Research Paper * (Individual) 4 case studies write-up (2 - 3 in a group) 1 mid-term test Final exam TOTAL RECOMMENDED TEXT :

30% 20% 15% 35% 100%

Joseph P. Ogden, Frank C. Jen and Philip F. OConnor, Advanced Corporate Finance, Policies and Strategy, Prentice Hall, 2002.

REFERENCES : 1. Eugene F. Brigham and Michael C. Ehrhardt, Financial Management, Theory and Practice, 11th Edition, South Western, Thomson. Smith, M. (2003), Research Methods in Accounting, London: Sage.

___________________________________________________________________ Fakulti Perakaunan 2004 Sarjana Perakaunan Hak Cipta Universiti Teknologi