Module 12: Corporate Governance & Financial Engineering

1. MODULE OVERVIEW

Building on the knowledge obtained in Module 6, the module moves from the impact of internal decisions, related to operations & strategy, on value creation, to study the broader organization of international capital markets and the interface between the firm and those markets, specifically the latest innovations in financing instruments.

2. OVERALL MODULE STRUCTURE

The course begins with another glance at value creation: can financial decisions create value? Three steps in financial decision theory are being reviewed: the traditional approach, which assumes investors are largely passive; the modern approach, pioneered by Nobel laureates Franco Modigliani & Merton Miller, which introduces investor activism; then, at last, the contemporary approach, which takes into account conflicts of interests and differences in information between financial debt-holders, equity-holders, and managers. The latter approach is illustrated by the discussion of a case which describes an extreme situation, representative of one of the wildest forms of financial capitalism.

On the second day, after a review of the International capital market history, we describe the important concepts of risk and return in finance. We describe the key components of the equity market and we present the main instruments of the derivative markets. We focus on key issues driving the innovation process in the current capital markets and we give an overview of the hedge fund and private equity industry.

The third day is focused on the development of private equity in China; it explains in particular how to successfully bring a company public.

The last day studies an important sophisticated hybrid financing instrument, the convertible bond, through a recent Chinese case.