• Understand whether and where to invest a firm’s resources
• Analyze what the funding options are and what the best option may be
• Understand why firms and financial markets behave the way they do
• Be able to analyze how corporate decisions are influenced by agency problems and how they can be solved

The modern intellectual history of finance dates back to around 1950. Since then, the major theoretical building blocks of today’s orthodoxy have been formulated. These are: Efficient market theory, which is the analysis of equilibrium behavior of price changes through time in speculative markets; Portfolio theory, which is the analysis of optimal security selection procedures for an investor’s entire portfolio of securities; Capital asset pricing theory, which is the analysis of the determinants of asset princes under conditions of uncertainty; Option pricing theory, which is the analysis of the determinants of prices of contingent claims; and Agency theory, which is the analysis of the control of incentive conflicts in contractual relations.

The development of a body of theory addressing these questions has evolved over time in roughly this order, and it has to a large extend metamorphosed into three major areas of corporate financial policy: Capital budgeting, which relates to how firms make investment decisions; capital structure, which relate to how firms finance their investments; and dividend policy, which relates to how firms distribute the return on their investments.

One aim of the course is to provide students with a solid knowledge of these theories and models, and to practice related analytical skills, so that they are able to both understand and evaluate financial problems using state of the art knowledge and techniques. At the same time, another aim of the course is to facilitate a reflexive discussion about the complexities in these problems, drawing on the other courses in the minor as well as the students’ academic background in general. Related to this cross-fertilization of courses, the major areas mentioned above are intimately related to the simultaneous development of more advanced financial markets and financial institutions, and this is probably where the other courses in the minor most significantly adds to this particular course.

Another important mechanism that has become increasingly important in modern finance, partly driven by innovations in the financial market (in light of the need to analyze a growing range of information originating from a riskier and more uncertain environment), as well as globalization and deregulation, is mergers and acquisitions and the reengineering of corporations that follows from this. This topic will also be an important part of the course; it is also a topic representative of the fact that the development of modern finance reflects the issues and challenges of each time. Over time, it has incorporated many concepts, and among the most recent and active ones are some that makes corporate finance highly relevant for our students: aspects of human psychology and neuroscience, sociology, and ethics, amongst others.

By now, as the result of a historical process, one may state that the role of modern corporate financial policy is to maximize shareholder value by means of investment, funding, and dividend policies, with constant evaluation of risk–return factors, capital costs, and balance in the company’s relationship with its investors and other stakeholders, within the context of corporate governance and social and environmental responsibility.

Please note that this course is part of the Minor “Financial Decision-Making in a Social Context: History, Sociology, Behavioral Finance and Corporate Finance”. The exam form listed above refers only to students who takes the course "Modern finance and corporate finance" as an elective. For students who sign up for the full minor, the exam form will be different. 

Berk, J., P. DeMarzo (2017). Corporate Finance, 4th Edition (Global). Pearson

A few topical pages or chapters from other books

A few journal articles