GBUS 8470 CORPORATE FINANCING (Financing the Firm)
CORPORATE FINANCING (CF) focuses on how firms raise funds to finance their operations and strategic objectives. Many firms attempt to finance their goals from internally generated profits and retained earnings but frequently find for strategic reasons, tax benefits, or marketplace opportunities that internally generated funds are insufficient for these purposes. In these circumstances, firms raise external capital by issuing securities and tapping investors in different markets. Over the past 20 years there has been tremendous development in the types of securities that firms can issue and the markets available to them to raise capital. CF focuses on frequently used financing arrangements and examines for each type of security the terms investors typically look for, how the cost of financing is determined, and what markets are more receptive to the issuer’s circumstances than others. The overall thrust of the course is to understand the capital raising and acquisition process – and how firms raise money.
What does the course cover?: Students with professional interests in corporate finance must understand the institutional process of security issuance and capital raising because the finance function is responsible for ensuring that the firm has ongoing access to capital, plans for future funding needs, and raises capital at the lowest possible cost. In addition to the formal rules and regulations, we spend time on the informal norms and practices of the marketplace to prepare students with a practical understanding of the opportunities to raise capital. We study a broad range of frequently used financing arrangements, such as IPOs, follow-on equity issues, ADRs, PIPEs, and several forms of straight and convertible debt. We examine the purpose of each financing arrangement from the firm’s and investors’ perspectives with an eye toward understanding the cost and availability of funds and how market conditions influence these.
Targeted student audience: CF is a primary corporate finance elective for students concentrating in the Corporate Finance track. These include students interested in CFO roles, placement in Treasury departments, corporate finance positions that involve business development or M&A and the financing of acquisitions, commercial banking, investment banking, financial services, and consulting that leads to restructuring or strategic acquisitions that involve external financing or restructuring of the firm’s existing financing. Many of our alumni have taken this course to help prepare them for the professional roles they have today.
Comparison to other finance electives: In comparison to Entrepreneurial Finance and Private Equity, CF focuses largely on the public markets – both domestic and international – that allow firms to raise capital at the lowest possible cost of capital. Public markets are regulated and knowledge of these rules is essential for professionals entering corporate finance fields. In comparison to Corporate Financing Policies, which focuses on the internal firm perspective and how firms set their dividend and capital structure policies, CF focuses on the external capital markets and has a strong capital markets orientation. Increasingly, the CFO and related roles involve discussions with analysts and persons in this capacity frequently are the face of the firm in terms of its communication with the capital markets.
Prerequisite: Valuation in Financial Markets is a prerequisite for this course.
Academic course objectives:
· Provide understanding of the terms and basic features of a broad range of financing instruments
· Develop an understanding of the terms and features that affect the cost of capital for particular securities
· Understand the appropriate context for when a particular security should be used
· Examine the metrics used to judge market sentiment and successful capital raising efforts (i.e., capital market reactions, the costs of issuance, quality of distribution)
· Examine ways firms ensure adequate funding and on-going access to the capital markets
· Examine financial structure and how individual securities work together within a firm’s overall capitalization
The course is discussion oriented and features a blend of qualitative and quantitative material.
Elements of the course grade:
Class contribution 35%
Final examination 65%