Theoretical Foundations of Corporate Finance

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Princeton University Press, 2001 - Business & Economics - 302 pages
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Corporate finance is the area of finance that studies the determinants of firms' values, including capital structure, financing, and investment decisions. Although there are several excellent texts in corporate finance, this is the first to focus on the theoretical foundations of the subject in a consistent and integrated way at the Ph.D. level. In addition to a textbook for advanced graduate students, it can also serve as a general reference to researchers and sophisticated practitioners.


The material presented is carefully selected with an eye to what is essential to understanding the underlying theory, ensuring that this text will remain useful for years to come. The book is divided into three parts. The first section presents the basic principles of valuation based on the absence of arbitrage, including a discussion of the determinants of the optimal capital structure based on the seminal results of Modigliani and Miller. The second section discusses the implications of agency problems and information asymmetries to capital structure, giving particular attention to payout policy and to debt contract design. The concluding portion presents different ways of restructuring capital, including going public, going private using stock repurchases or leveraged buyouts, and mergers and acquisitions. Each chapter includes exercises that vary in difficulty, with suggested solutions provided in an appendix.


This book will assuredly be the standard doctoral- and professional-level explication of corporate finance theory and its appropriate applications.

 

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Contents

Valuation
3
11 Valuation under Certainty
5
12 Valuation under Uncertainty
18
13 Multiperiods and Flexibility under Uncertainty
29
Optimal Capital Structure
39
21 The MM Propositions
40
22 Personal and Corporate Taxation
48
Agency and Information
59
72 Leveraged Buyouts
179
Mergers and Acquisitions
191
81 Tender Offers and the FreeRider Problem
192
82 Merger Bids
205
Appendices
225
Optimization Principles
227
A2 Constrained Optimization
228
Notions of Game Theory
233

Implications for Capital Structure
61
31 The Role of Agency Costs
62
32 Informational Asymmetries
78
Payout Policy
97
41 Dividend Policy
98
42 Dividends and Information
110
43 Stock Repurchases
119
Financial Contracting
125
51 Contracting and Allocation of Control
126
52 Debt Contract Design
134
Capital Restructuring
149
Going Public
151
61 The Going Public Decision
152
62 Underpricing and Information Asymmetries
160
Going Private
177
B2 Informational Equilibrium
234
B3 The Revelation Principle
238
Suggested Solutions
241
C2 Optimal Capital Structure
251
C3 Implications for Capital Structure
255
C4 Payout Policy
261
C5 Financial Contracting
266
C6 Going Public
268
C7 Going Private
270
C8 Mergers and Acquisitions
271
Notes
279
Bibliography
285
Index
297
Copyright

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About the author (2001)

Joćo Amaro de Matos is Director of the Undergraduate Business Program in the School of Economics, Universidade Nova de Lisboa, Portugal. His teaching includes MBA and Ph.D. courses in Europe and Brazil, and he holds Ph.D.s in both Management and Physics.

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