Premium Essay

Theory & Practice of Corporate Finance

In: Business and Management

Submitted By Zewdula
Words 3531
Pages 15
Table of Contents I. Article Summary 3 1.1. Article Title: 3 1.2. Authors: 3 1.3. Publication: 3 1.4. Reviewer: 3 1.5. Purpose of the Article 3 II. Analysis and Synthesis 4 2.1. Most important conclusion 4 2.2. Special issue about the study subject 6 2.3. Relating issues raised in the article with the business environment and financial system in Ethiopia 7 2.4. Points we Agree or Disagree with 7 2.5. One part of the article that helped to understand finance 8 III. Hypothesis Comparison. 8 IV. How the information in the article affect the business manager in us 9 4.1. Becoming a better financial manager 9 4.2. Becoming a better professional 9 4.3. Practicing suggestions in the article 9 4.4. Issues listed by the authors 10 References 13

I. Article Summary
1.1. Article Title: The theory and practice of corporate finance: Evidence from the field
1.2. Authors: John R. Graham and Campbell R. Harvey
1.3. Publication: the article is published in the Journal of Financial Economics, Volume 60, Issue 2, Pages 187-243, dated 31/05/2001. The publisher is North-Holland.
1.4. Reviewer: Group 8 members 1. 1.5. Purpose of the Article
The article reports the result of a comprehensive survey on the practice of corporate finance conducted in 1999 G.C by the above mentioned two authors in the USA. Unlike previous similar studies in theory and practice of corporate finance, the article address a broader scope in the field of corporate finance including capital budgeting, cost of capital and capital structure, which according to the authors allows “linking responses of survey participants across areas”. Selecting a large sample of cross-section firms with approximate population size of 4,440, the authors claim to have solicited the response of 392 chief financial officers and to have analysed how these firms practically apply the text book recommendations...

Similar Documents

Premium Essay

The Theory and Practice of Corporate Finance:

...Journal of Financial Economics 61 (2001) 000-000 The theory and practice of corporate finance: Evidence from the field John R. Grahama, Campbell R. Harveya,b,* aFuqua School of Business, Duke University, Durham, NC 27708, USA bNational Bureau of Economic Research, Cambridge, MA 02912, USA (Received 2 August 1999; final version received 10 December 1999) Abstract We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on present value techniques and the capital asset pricing model, while small firms are relatively likely to use the payback criterion. A surprising number of firms use firm risk rather than project risk in evaluating new investments. Firms are concerned about financial flexibility and credit ratings when issuing debt, and earnings per share dilution and recent stock price appreciation when issuing equity. We find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes. JEL classification: G31, G32, G12 Key words: Capital structure; Cost of capital; Cost of equity; Capital budgeting; Discount rates; Project valuation; Survey *Corresponding author, Tel: 919 660 7768, Fax: 919 660 7971 E-mail address: ......

Words: 18591 - Pages: 75

Premium Essay

Theory and Practice in Corporate Finance

...Journal of Financial Economics 60 (2001) 187}243 The theory and practice of corporate "nance: evidence from the "eldଝ John R. Graham , Campbell R. Harvey * Fuqua School of Business, Duke University, Durham, NC 27708, USA National Bureau of Economic Research, Cambridge, MA 02912, USA Received 2 August 1999; received in revised form 10 December 1999 Abstract We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large "rms rely heavily on present value techniques and the capital asset pricing model, while small "rms are relatively likely to use the payback criterion. A surprising number of "rms use "rm risk rather than project risk in evaluating new investments. Firms are concerned about "nancial #exibility and credit ratings when issuing debt, and earnings ଝ We thank Franklin Allen for his detailed comments on the survey instrument and the overall project. We appreciate the input of Chris Allen, J.B. Heaton, Craig Lewis, Cli! Smith, Jeremy Stein, Robert Taggart, and Sheridan Titman on the survey questions and design. We received expert survey advice from Lisa Abendroth, John Lynch, and Greg Stewart. We thank Carol Bass, Frank Ryan, and Fuqua MBA students for help in gathering the data, and Kathy Benton, Steve Fink, Anne Higgs, Ken Rona, and Ge Zhang for computer assistance. The paper has bene"ted from comments made by an anonymous referee, the editor (Bill Schwert), as well as Michael Bradley, Alon Brav, Susan......

Words: 27368 - Pages: 110

Premium Essay

Acf 2011 Sem 2

...Accredited Tertiary Courses Listing 2012 Accredited Tertiary Courses Listing 2012 – as at 26 September 2012 1 2012 Accredited Undergraduate Courses AUSTRALIAN CAPITAL TERRITORY The Australian National University University of Canberra NEW SOUTH WALES Australian Catholic University Australian Institute of Higher Education Avondale College Charles Sturt University Kings Own Institute Macquarie University Southern Cross University Top Education Institute The University of New England The University of New South Wales The University of Newcastle The University of Sydney University of Technology, Sydney University of Western Sydney University of Wollongong Williams Business College NORTHERN TERRITORY Charles Darwin University QUEENSLAND Australian Catholic University Bond University Central Queensland University Christian Heritage College Griffith University James Cook University Queensland University of Technology The University of Queensland The University of Southern Queensland University of the Sunshine Coast SOUTH AUSTRALIA Flinders University Kaplan Business School The University of Adelaide University of South Australia Open Universities (conferred by Uni of SA) TASMANIA University of Tasmania VICTORIA Australian Catholic University Cambridge International College Carrick Higher Education Deakin University Holmes Institute Holmesglen Institute of TAFE La Trobe University Melbourne Institute of Technology Monash University Northern Melbourne Institute of TAFE RMIT...

Words: 16200 - Pages: 65

Premium Essay

Taxonomy Assignment

...Finance Theories Taxonomy 1 Finance Theories Taxonomy 2 Finance Theories Taxonomy This document presents a taxonomy of selected finance theories developed in past 5 decades by academics, practitioners and scholars in the United States, Europe, Asia and Latin America. A total of 14 theories and models are synthesized in this work, organized in five tables with the same structure: Theories of capital structure; capital budgeting and cost of equity; asset valuation, financial behavior and international finances. Each table contains theories organized alphabetically with an indication of its germinal or current character. The description of the theory is accompanied by current examples of empirical research that updates or contradicts the theory and additional information about limitations, scope and opportunities of research. Finance Theories Taxonomy 3 Table 1 Finance Theories Taxonomy: Theories of capital structure Theory General description Current examples of the theory Other attributes Modigliani and Miller Germinal theory of corporate finance A review of the theory by Criticism against flaws of M& M theory Theory of investment proposed by Miller and Modigliani Miller himself, offers a new (Ball, 2001) (1958) argues that “the value of a firm view about the so called ‘junk 1. Market perfection. M&M assumed is independent of its capital structure” bonds’ which were considered information......

Words: 5057 - Pages: 21

Premium Essay

Financial Theory Copeland Weston Solutions Pdf

...access to PDF Ebook Financial Theory Copeland Weston Solutions from our online library FINANCIAL THEORY COPELAND WESTON SOLUTIONS PDF Download: FINANCIAL THEORY COPELAND WESTON SOLUTIONS PDF FINANCIAL THEORY COPELAND WESTON SOLUTIONS PDF - Are you looking for PDF/Ebooks Financial Theory Copeland Weston Solutions?. You will be glad to know that right now Financial Theory Copeland Weston Solutions is available on our online library. With our online resources, you can find Financial Theory Copeland Weston Solutions or just about any type of manual, for any type of product. Best of all, they are entirely free to find, use and download, so there is no cost or stress at all. Financial Theory Copeland Weston Solutions may not make exciting reading, but Financial Theory Copeland Weston Solutions is packed with valuable instructions, information and warnings. We also have many ebooks and user guide is also related with Financial Theory Copeland Weston Solutions, include : Copeland Weston Shastri Financial Theory, financial theory and corporate policy copeland pdf, Financial Theory And Corporate Policy Copeland, Financial Theory And Corporate Policy Copeland Pearson, Thomas Copeland Financial Theory And Corporate Policy, Copeland Weston Shastri, Weston And Copeland Managerial Finance, Copeland Weston Shastri Chapter 5, Financial Accounting Theory Deegan Solutions, financial accounting theory 5th edition solutions, Financial Accounting Theory Deegan 4e Solutions,......

Words: 1954 - Pages: 8

Premium Essay

Financial Theory Summaries

...Financial Theories Overview Tyrone Freeman University of Phoenix Financial Theories Overview Table 1 Financial Theories Overview |Theories |General Description |Attributes |Current Examples | | |Of the Theories |Of the Theories |Of the Theories | | | | | | |Efficiency Theory |The idea is that investors are so |Information not reflective in the |The Facebook IPO of last year is a | | |competitive in the use of |stock price provides an investor |good example of the need for | | |information regarding a firm that |with opportunity to exploit the |efficiency market theory practice. | | |their trading behaviors bid away |value of the new information until |Specifically, four major | | |firms ability use information as |all gains are competed away (Ball, |underwriters Morgan Stanley, | | |value added to returns. Thus, the |2002). |Goldman Sachs, JPMorgan, and Bank | | ...

Words: 2650 - Pages: 11

Free Essay

Stakeholder

...University of Central Oklahoma ABSTRACT This paper attempts reconciliation between the two somewhat extreme views espoused by the shareholder wealth maximization paradigm and the stakeholder theory. The stakeholder theory challenges the basic premise built into corporate finance theory, teaching and practice. Corporate finance theory, teaching and the typically recommended practice are all built on the premise that the primary goal of a corporation should be shareholder wealth value maximization. Extant theoretical and empirical research in financial economics also generally accept shareholder wealth maximization as the normative and ideal goal on which all business decisions should be based. This paradigm assumes that there are no externalities and all the participants engaged in transactions with the firm are voluntary players competing in free, fair and competitive markets. A very different view is offered by what is loosely called stakeholder theory. The stakeholder theory posits that the focus on shareholders and firm value is misplaced and managers should be concerned with all stakeholders of the firm. The paper attempts to address what is felt as a lack of dialogue between the two camps. INTRODUCTION Corporate finance theory, teaching and the typically recommended practice at least in the US are all built on the premise that the primary goal of a corporation should be the maximization of shareholder value. Extant theoretical and empirical research......

Words: 4065 - Pages: 17

Premium Essay

Course Outline

...POST GRADUATE PROGRAMME IN MANAGEMENT AY 2015-16 TERM: III TITLE OF THE COURSE: FINANCE II CREDITS: 4 Name of the Faculty Arnab Bhattacharya Gaurav Singh Chauhan Kousik Guhathakurta Radha M. Ladkani Faculty Block/ Room No. J BLOCK C-102 A-106 J BLOCK Email Telephone Number arnabb@iimidr.ac.in gauravs@iimidr.ac.in kousikg@iimidr.ac.in; radhal@iimidr.ac.in; 0731-2439589 0731-2439592 0731-2439518 0731-2439698 COURSE DESCRIPTION The second core course in Finance deals with the core corporate finance functions in an applied setting. The participants are exposed to real world corporate finance decisions to be taken up by managers for creating value. Such an exposure is accomplished through a mix of theory and practice. The pedagogy employed reflects a judicious mix of case discussions, lectures and problem solving approach. COURSE OBJECTIVES The objective is to familiarize participants with the three major decision areas of Corporate Finance, viz. the investments, financing and earnings distribution decisions. Subsequently the participants are to be offered an integrated view of the decision areas by discussing the issues in corporate valuations and risk management. The course aims at sharpening the financial decision making skills of the participants. EXPECTED LEARNING OUTCOMES AND ASSOCIATED MEASURES At the end of the course student is expected to accomplish the following learning outcomes. Alignment of Course Learning Outcomes......

Words: 1664 - Pages: 7

Premium Essay

An Improved Pedagogy of Corporate Finance

...An Improved Pedagogy of Corporate Finance: a Constrained Shareholder Wealth Maximization Goal by Michael R. Santos , Gina Vega , John T. Barkoulas INTRODUCTION Bloom's taxonomy (1956) has guided pedagogical structure and innovation for half a century in the United States, and its focus on developmental learning remains relevant and instructive for us. The six developmental levels (knowledge, understanding, application, analysis, synthesis, and evaluation) separate basic knowledge acquisition from the critical thinking and analytical skills necessary for making ethical decisions or judgments. Answering questions about business ethics requires knowledge from multiple disciplines, including philosophy, psychology, political science, sociology, economics, finance, organizational management, and law. Analyzing such a vast body of data in ethical frameworks requires the highest levels (analysis, synthesis, and evaluation) of critical thinking as expressed in the taxonomy. Corporate governance, an interdisciplinary subject addressed in all these disciplines, explores the inter- workings of both for-profit firms and not-forprofit firms and is an area requiring business students to evaluate ethical issues when making decisions. Despite the broad responsibility of teaching corporate governance in the finance classroom, the pedagogy of finance has been restricted to ideas derived primarily from economics, statistics, and finance. Competing ideas from other disciplines are......

Words: 7223 - Pages: 29

Premium Essay

Survey

...University* e recently conducted a comprehensive survey that analyzed the current practice of corporate finance, with particular focus on the areas of capital budgeting and capital structure. The survey results enabled us to identify aspects of corporate practice that are consistent with finance theory, as well as aspects that are hard to reconcile with what we teach in our business schools today. In presenting these results, we hope that some practitioners will find it worthwhile to observe how other companies operate and perhaps modify their own practices. It may also be useful for finance academics to consider differences between theory and practice as a reason to revisit the theory. We solicited responses from approximately 4,440 companies and received 392 completed surveys, representing a wide variety of firms and industries.1 The survey contained nearly 100 questions and explored both capital budgeting and capital structure decisions in depth. The responses to these questions enabled us to explore whether and how these corporate policies are interrelated. For example, we investigated whether companies that made more aggressive use of debt financing also tended to use more sophisticated capital budgeting techniques, perhaps because of their greater need for discipline and precision in the corporate investment process. More generally, the design of our survey allowed for a richer understanding of corporate decision-making by analyzing the CFOs’ responses in the context......

Words: 10945 - Pages: 44

Premium Essay

Consulting

...students Programme School of Business Business School of Economics and Finance Economics Finance Major X √ √ Minor √ √ √ II. GPA Requirement A yearly GPA of 3.0 of above as of August 31 (excluding Summer Semester) at the end of the first year of study must be obtained for eligibility to declare any major or minor offered by the Faculty of Business and Economics. For students who fail to meet the GPA requirement at the end of their second year of study, their declaration of FBE major/minor will be removed from the SIS by their home Faculty. III. Requirements for Major Programmes Students are required to complete 60 credits of prescribed courses for each major as follows: (A) Majors offered by the School of Economics and Finance 1. Major in Economics (60 credits) Course code Course Credits Year 1 courses: 12 credits ECON1001 Introduction to economics I 6 ECON1002 Introduction to economics II 6 Year 2 and Year 3 courses: 48 credits ECON2101 Microeconomic theory or 6 ECON2113 Microeconomic analysis 6 ECON2102 Macroeconomic theory or Macroeconomic analysis ECON2114 ECONxxxx/ Year two/Year three courses listed in Economics 36 FINAxxxx or Finance electives Total: 60 2. Major in Finance (60 credits) Course code Course Year 1 courses: 18 credits BUSI1002 Introduction to accounting ECON1001 Introduction to economics I FINA1003 Corporate finance Year 2 and Year 3 courses: 42 credits ECON2101 Microeconomic theory or ECON2113 Microeconomic analysis FINA0301 Derivatives......

Words: 1346 - Pages: 6

Premium Essay

Cost of Capital

...University* e recently conducted a comprehensive survey that analyzed the current practice of corporate finance, with particular focus on the areas of capital budgeting and capital structure. The survey results enabled us to identify aspects of corporate practice that are consistent with finance theory, as well as aspects that are hard to reconcile with what we teach in our business schools today. In presenting these results, we hope that some practitioners will find it worthwhile to observe how other companies operate and perhaps modify their own practices. It may also be useful for finance academics to consider differences between theory and practice as a reason to revisit the theory. We solicited responses from approximately 4,440 companies and received 392 completed surveys, representing a wide variety of firms and industries.1 The survey contained nearly 100 questions and explored both capital budgeting and capital structure decisions in depth. The responses to these questions enabled us to explore whether and how these corporate policies are interrelated. For example, we investigated whether companies that made more aggressive use of debt financing also tended to use more sophisticated capital budgeting techniques, perhaps because of their greater need for discipline and precision in the corporate investment process. More generally, the design of our survey allowed for a richer understanding of corporate decision-making by analyzing the CFOs’ responses in the context......

Words: 10903 - Pages: 44

Premium Essay

Hghfgh

...goods and services and the information systems that link these processes. Throughout the module the use of information technology to carry out these functions and improve operations will be emphasised. This module is also intended to be a survey of the operating practices and procedures found in both manufacturing and service delivery firms. It will focus on those business processes and procedures used to transform various inputs into finished goods and services. The value added aspects of Operations Management such as purchasing, material requirements planning, inventory control and project management are also covered. 3. Learning Outcomes: Upon successful completion of the module the students will be able to: describe how organisations can reduce waste and improve quality. explain the impact and importance of the customer-supplier-competitor relationship within business operations. apply quantitative tools and techniques for planning, predicting, measuring and monitoring operations. base strategic decisions on information derived from these tools and techniques. understand the relationship between operations and each of the other major business functions such as Marketing, Human Resources, Finance. describe how operations strategies can enhance the effectiveness of the business. recognise the importance of accurately predicting demand and adjusting capacity in response to demands 4. Indicative Content • Design of production and information......

Words: 3197 - Pages: 13

Premium Essay

To Login to This

...characteristics on corporate social responsibility disclosure by Islamic banks: evidence from Gulf Cooperation Council countries Abdullah Awadh Bukair and Azhar Abdul Rahman Abstract Corporate social activities have become major subjects because of their effects on the quality life of citizens, in particular, and on the society at large. Therefore, today, there is an increase awareness of social responsibility due to the challenges meeting the financial institutions (particularly, Islamic banking) around the world. This paper examines the influence of the board of directors’ characteristics, consisting of board size, board composition, and the separation roles of CEO and chairman, on corporate social responsibility (CSR) disclosure in 53 annual reports of Islamic banks of Gulf Cooperation Council (GCC) countries after controlling of bank size, financial performance and relevant public. Based on the framework of legitimacy theory, the findings show that CSR disclosure has a negative and insignificant relationship with board composition. On contrast, the study found insignificantly and positive association between CSR disclosure and other characteristics of board of directors (board size and the separation roles of CEO and chairman). With regards control variables, the study indicates that bank size and financial performance have a positive and significant influence on CSR disclosure, while relevant public has no effect. Therefore, the results indicate that corporate......

Words: 11161 - Pages: 45

Premium Essay

Ethics

...Crane & Matten, Business ethics, 3rd Edition, Chapter 6 Suggested answers to the Think Theory exercises associated with the Ethics in Action boxes THINK THEORY 1 Think of the duties of managers to their shareholders from the perspective of ethics of duty (Kant’s theory). Apply this theoretical lens to the three incidents described above. In each case, management in the three incidents failed to respect the ethics of duty. Kant’s Maxim 1 is about an action being right only if everyone could follow the same underlying principle (the ‘golden rule’). For example, Ahold management concealed the true state of affairs from the company’s owners (and everyone else), action which they cannot have wanted to become a universal law. Maxim 2 requires human dignity to be respected, with people being treated as ends, not means. For example, management at Porsche treated the company owners instrumentally, not respecting their dignity, essentially treating them as ‘finance-providing ends’. Maxim 3 is about universality; whether the principles of an action would be acceptable for every person. The fact that 90% of shareholders voted against Goodwin’s pension is clear evidence that this was not the case at RBS. THINK THEORY 2 Thinking of different corporate governance practices around the world, are these just ‘different’ (i.e. reflecting different cultural and customary practices) or would you argue that some of them are clearly more or less ethical from a moral perspective? One......

Words: 2174 - Pages: 9