1. Corporate Governance and Corporate Finance
Spring semester 2009/2010 academic year Instructor: Alexander Bukhvalov, PricewaterhouseCoopers Professor of Finance, Department of Finance and Accounting Web site: Contact hours: Tuesday, , room 217

2. Corporate Governance
Corporate Governance (CG) is a discipline, which examines the performance/organization of the power in a company.
It is a mixture of
economics (motivation)
law (legal fiction)
management (how-to-do).

3. Corporate Governance: Contents
Agency Problem
Executive Incentives
Transparency, Accounting, External Auditing
The Board of Directors
Investment Banks, IPO
Creditors
Shareholders: big and minority, dividends, voting
Restructuring: IPO, LBO, M&A, divestiture
Securities and Exchange Comission
Stakeholders

4. Corporate Finance Valuation
Discounted Cash Flow (DCF): Income Approach
Tobin’s Q: Cost Approach
Multiples: Comparables Approach
(Stock) Market Approach: Capitalization

5. Corporate Finance Risk (CAPM – Capital Asset Pricing Model) Systematic
Specific

6. Case: XYZ company Actors:
Engineer X (innovative project, $200K life savings
Mrs Y (doing nothing, wealthy, has fortunate inheritance $830K)
Mr Z (a legal company partner, has bonus of $250K)

7. Case: XYZ company Project needs $1M for implementation.
Actors behavior:
Engineer X does not wish to spend any penny from his life savings
Mrs Y is light-minded about her unexpected inheritance
Mr Z as a professional thinks about investment thoroughly

8. Case: XYZ company Solution:
Engineer X: CEO, $100K investment in equity, 50% ownership
Mrs Y: $700K investment in equity, 50% ownership
Mr Z: $200K investment as a credit.

9. The Role of Financial Assets
Transfer of capital
Allocation of risks

10. Home Assignment
Jensen M.C., Mekling W.H. Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure // Journal of Financial Economics 3 (4), 1976, Also available at