Financial Theory And Corporate Policy Pdf

[Latanya Hariri]

Thisclassic textbook in the field, now completely revised and updated, provides a bridge between theory and practice. Appropriate for the second course in Finance for MBA students and the first course in Finance for doctoral students, the text prepares students for the complex world of modern financial scholarship and practice. It presents a unified treatment of finance combining theory, empirical evidence and applications.

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Course Description: Covers the fundamental principles of corporate financial management and capital markets. Major topics include general valuation methods for risky cash flow streams, capital budgeting, asset pricing models, risk management, equity financing, debt financing, and dividend policy.

There are countless benefits to earning an MBA. From moving up the career ladder, to gaining the skills you need to switch fields or start your own business, an MBA opens many new professional doors to you.

I construct a simple model with sticky prices and interest rate targets, closed by fiscal theory of the price level with long-term debt and fiscal and monetary policy rules. Fiscal surpluses rise following deficits, to repay accumulated debt, but surpluses do not respond to all values of unexpected inflation and deflation. This specification avoids common puzzles and produces reasonable responses to fiscal and monetary policy shocks. It allows an easy translation of any new-Keynesian model, and it allows one to study a whole sample with active fiscal policy.

I thank editors, reviewers, seminar participants and especially Marco Bassetto for many useful comments. Code and updates are at The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.

Sebastian Gryglewicz is Professor of Finance at Erasmus University Rotterdam; Simon Mayer is a PhD student in Financial Economics at the Erasmus University Rotterdam; and Erwan Morellec is Professor of Finance at the Ecole Polytechnique Fdrale de Lausanne (EPFL). This post is based on their recent paper, forthcoming in the Journal of Financial Economics. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

While empirical evidence relating short- or long-termism to firm performance is accumulating at a fast pace, financial theory has made little headway in developing models that characterize the optimal horizon of corporate policies or the relation between firm characteristics and this horizon. Our paper titled Agency Conflicts and Short- versus Long-Termism in Corporate Policies attempts to provide an answer to these questions through the lens of agency theory. To do so, we develop a dynamic agency model in which the agent controls both current earnings and firm growth (i.e., future earnings) through unobservable investment. In this multitasking model, the principal optimally balances the costs and benefits of incentivizing the manager over the short or long term. As shown in the paper, this can lead to optimal short- or long-termism, depending on the severity of agency conflicts and on firm characteristics. Additionally, we show that the same firm can find it optimal at times to be short-termist (i.e., favor current earnings) and, at other times, to be long-termist (i.e., favor growth).

The paper starts by formulating a dynamic agency model in which an investor (the principal) hires a manager (the agent) to operate a firm. In this model, agency problems arise because the manager can take hidden actions that affect both earnings and firm growth. Specifically, the manager can stimulate current earnings via short-term investment and firm growth via long-term investment. Investment is costly and the manager can divert part of the funds allocated to investment.

An introduction to economics stressing the fundamental and central concepts in economics and discussing methods and topics that engage economists. Topics include supply and demand analysis, determination of prices, output and profits, distribution of income, determination of real GDP, and fiscal and monetary policy. Offered every semester. [SS]

This course is designed to give students a better understanding of how the environment and the economy interact and how public policy can be used to shape this interaction. The course begins by sketching out the flows of natural resources associated with economic activity and how the environmental effects produced by these flows are valued. The course then proceeds to show how market economies affect the environment. Particular emphasis is placed on the environmental damage generated by market economies and how public policy can best be used to address this damage.

This course examines how well markets work and what democratic states ought to do to affect their functioning. Students will consider how personal behavior relates to public decisions; the functioning of markets and governments; government responsibility to insure against natural, personal, and social risks; and inequalities arising from market competition and political participation. [V, W]

This course examines the causes and consequences of international economic integration. It explores the forces that shape the pattern of international trade as well as the welfare effects of such trade. It also studies the policies that governments can use to regulate trade. Finally, it analyzes how international economic integration impacts aggregate economic performance by introducing concepts such as exchange rates and the balance of payments.

This course emphasizes the importance of risk management in a sustainable business. Financial Economics provides the tools that enable a discussion of the private and social net benefits to sustainability. Topics include sustainable developments, corporations as a business organization, benefit corporations, risk management and its role in a sustainable business, the modeling of corporate risks, markets for trading risk and social impact investing.

The US healthcare has many stakeholders whose often opaque and complex market interactions ultimately affect the cost, accessibility, and quality of healthcare consumers face. Patients, policymakers and healthcare businesses rely not just on institutional knowledge of medicine, law, and culture, but on the incentives these system structures create that determine how firms compete in healthcare markets and individuals pursue their health and well-being. Health economics applies economic theory to healthcare markets and individual health behaviors to understand these incentives and interactions as well as guide policymakers in addressing issues of market failure and inequity in healthcare markets. In this class, students will be introduced to the economic theory that underpins healthcare markets and health behaviors.

This course analyzes the financial and monetary systems in the United States. We will cover a variety of topics including the role of money in the financial system, the structure of financial institutions, types of financial instruments, monetary policy and the macroeconomic implications of those policies both domestically and internationally. Finally, the course explores the connections between financial markets and the Federal Reserve with economic models and current events.

Understanding how to find, manipulate and interpret macroeconomic date is an important tool to comprehend the world we live in and policy decisions made by central banks and fiscal authorities. Students in this course will learn how to obtain and use macroeconomic data such as GDP, inflation and unemployment for the analysis of current economic issues and policy decisions.

An introduction to the concepts, techniques, and application of evolutionary game theory. The mathematics of game theory and natural selection offer insights valuable to the study of economics, biology, psychology, anthropology, sociology, philosophy, and political science. This course is intended to serve students with interests in any of these fields learn the approach, requiring minimal mathematical background, with special attention to apparent paradoxes, such as the evolution of altruism. [V]

A study of how individuals and organizations deal with the problem of scarcity, the role of prices in coordinating economic activity, criteria for determining desirable allocation of resources, the mix of private and public institutions, and the economic basis of public policies.

An examination of aggregate economic activity focusing on the forces that determine the behavior of real GDP, interest rates, and the price level. Economic growth, fluctuations, unemployment, and inflation are analyzed along with alternative policies for dealing with them.

This course focuses on building multiple regression models useful for testing economic theories and making business forecasts. Topics include simple and multiple regression, dummy variables, multicollinearity, heteroscedasticity, serial correlation, and binary dependent variable models. The coursework includes extensive use of statistical software packages and large data sets. Students who receive credit for 253 may not receive credit for ECON 365. Similarly, students who receive credit for ECON 365 may not receive credit for 253.

Strategic corporate social responsibility (CSR) is about how a company resolves the dilemmas around its core product or service, how that product is produced, and how and to whom it is marketed. In effect, multi-national corporations which have a business model that uses profit to fuel constant innovation in new products, now have to include, for example, programs to reduce emissions, carbon trading, fair trade practices and differential pricing of general drugs in poor developing countries that demonstrate the potential for CSR; others illustrate the continuing limitations. The object of this course is to make students aware of international business situations that require moral reflection, judgement and decision, while revealing the complexities that often surround business choices and the formation of public policies. Learning through cases of irresponsible actions as well as responsible behavior, the course focuses attention on the study of International Business circumstances in which hard choices must e made under complex conditions of uncertainty and disagreement. Students who receive credit for 255 may not receive credit for ECON 352. Similarly, students who receive credit for ECON 352 may not receive credit for 255.

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