Financial Management Shing-yang Hu 胡星陽 2019/4/30 Hu - Introduction

Format and Intended audience English course Students who have taken a course of financial management in universities. 2019/4/30 Hu - Introduction

Objective To introduce topics on investment decisions and financing decisions with a greater depth Avoid too many mathematical technicalities 2019/4/30 Hu - Introduction

Textbook Stern, Joel M., and Donald Chew Jr., 2003, The Revolution in Corporate Finance, 4th ed. Blackwell Publishing （華泰書局進口） 2019/4/30 Hu - Introduction

Grading Class participation (20%) Midterm examination (30%) Cases (25%). Term paper (25%). 2019/4/30 Hu - Introduction

Grading Cases Group projects. Each group can have three to four students. I will provide basic materials for each case, and each group will prepare oral presentations. 2019/4/30 Hu - Introduction

Grading Term paper It is also a case study, but each group should prepare its own materials. It should fit in the topics discussed in the course. The term paper should have both oral presentation and written report. Written reports have to be typed and have a maximum of twenty pages. 2019/4/30 Hu - Introduction

2019/4/30 Hu - Introduction

2019/4/30 Hu - Introduction

Topics Corporation as an organization Corporate objective Value-driven management 賣出者會使股價承受下降的壓力，這有兩種功能： 一方面是傳遞訊息，表達股東的不滿，促使公司決策者改變決策。 另一方面是讓市場派購買股份，進而變更經營團隊的成本降低。 2019/4/30 Hu - Introduction

Corporation as an organization Difference between a corporation and an individual? 2019/4/30 Hu - Introduction

Corporation as an organization Difference between a corporation and an individual? Corporation is connected with many individuals Shareholders Stakeholders Lenders (Bondholders, bankers) Input providers (raw materials, labors, equipments) Customers All have different objectives 2019/4/30 Hu - Introduction

Corporation as an organization Whose objective counts? Who should make decisions? Shareholders Stakeholders Should the government put restrictions on corporate investments in Mainland China? 2019/4/30 Hu - Introduction

Corporation as an organization Who has the ownership of a corporation? What is ownership? 2019/4/30 Hu - Introduction

Corporation as an organization What is ownership? Residual income rights Not stipulated by laws and contracts Residual decision rights Divided between shareholders’ meeting, board of directors, and managers 2019/4/30 Hu - Introduction

Corporation as an organization Normatively Shareholders have the final say Positively Who are actually making the decision? Are directors and managers serve their own interests or shareholders’ interests? 2019/4/30 Hu - Introduction

Corporation as an organization HP-Compaq 2001/9/4 (Tuesday): HP announces plans to buy Compaq for $25 billion At the end of the week (2001/9/7): H-P was down 22% for the week. Market value dropped $5.6 billion Compaq was down 14% for the week Standard & Poor's 500-Stock Index dropped 4%. 2019/4/30 Hu - Introduction

Corporation as an organization Corporate governance structure Internal Compensation structure, board External Takeover fight, proxy fight 2019/4/30 Hu - Introduction

Corporate Objective Maximize corporate value Market value What decides market value? 2019/4/30 Hu - Introduction

Corporate Objective From the balance sheet Cash flow statement Market value is the sum of the market value of all securities Cash flow statement Market value is the sum of discounted future cash flows generated by assets Cash flow = Cash inflows – outflows Inflows: Revenues, sale of securities Outflows: Expenses, interest payments, cash dividends, Repay loans 2019/4/30 Hu - Introduction

Value-driven management How do we evaluate decisions using values? Value added = Change in (Market value – Book value) 2019/4/30 Hu - Introduction

Value-driven management 2019/4/30 Hu - Introduction

Value-driven management Value is the criteria of decision making Connection between value and other financial objectives Growth in earnings – Bausch & Lomb Connection between value and other non-financial objectives Market share Customer satisfaction Innovation 2019/4/30 Hu - Introduction

Value-driven management Identify key value drivers Short-term and objective goals Decision variables under managerial control 2019/4/30 Hu - Introduction

Value drivers for a retailer 2019/4/30 Hu - Introduction

Value-driven management Formulate strategy Long-term and short-term goals Action plans Consistent performance evaluation and incentive systems 2019/4/30 Hu - Introduction