1. Financial Management
Shing-yang Hu
胡星陽
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Hu - Introduction

2. Format and Intended audience
English course
Students who have taken a course of financial management in universities.
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3. Objective
To introduce topics on investment decisions and financing decisions with a greater depth
Avoid too many mathematical technicalities
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4. Textbook
Stern, Joel M., and Donald Chew Jr., 2003, The Revolution in Corporate Finance, 4th ed. Blackwell Publishing （華泰書局進口）
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5. Grading Class participation (20%) Midterm examination (30%)
Cases (25%).
Term paper (25%).
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6. 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.
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7. 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.
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10. 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。
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11. Corporation as an organization
Difference between a corporation and an individual?
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12. 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
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13. Corporation as an organization
Whose objective counts?
Who should make decisions?
Shareholders
Stakeholders
Should the government put restrictions on corporate investments in Mainland China?
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14. Corporation as an organization
Who has the ownership of a corporation?
What is ownership?
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15. 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
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16. 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?
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17. 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%.
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18. Corporation as an organization
Corporate governance structure
Internal
Compensation structure, board
External
Takeover fight, proxy fight
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19. Corporate Objective Maximize corporate value Market value
What decides market value?
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20. 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
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21. Value-driven management
How do we evaluate decisions using values?
Value added = Change in (Market value – Book value)
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22. Value-driven management
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23. 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
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24. Value-driven management
Identify key value drivers
Short-term and objective goals
Decision variables under managerial control
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25. Value drivers for a retailer
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26. Value-driven management
Formulate strategy
Long-term and short-term goals
Action plans
Consistent performance evaluation and incentive systems
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