This book provides an integrative perspective on financial management and corporate governance deployed in management decisions. It analyzes wide-ranging issues such as valuation, capital investment, capital structure, mergers and acquisitions, shareholder and stakeholder value management, and corporate governance structure. Throughout the analyses, the book provides a coherent view of firms, laws and markets, and offers practical financial modeling techniques to assist in financial decisions. This book also incorporates the latest developments in practice, such as direct listings and SPACs in capital markets, contractual arrangements in mergers and acquisitions, setting of corporate purpose, protection of minority investors in related party transactions, balancing of shareholder and stakeholder value from an ESG perspective, and the growing influence of activist funds, index investors and proxy advisors. It looks at these complex issues in firm management through the dual lens of asymmetric information and conflicts of interest that managers deal with, and gives coherency and clarity to the understanding of these key issues in management.
Author(s): Daisuke Asaoka
Publisher: World Scientific Publishing
Year: 2022
Language: English
Pages: 223
City: Singapore
Contents
About the Author
Acknowledgment
List of Figures
List of Tables
Introduction
1. What Is the Difference Between Management and Financial Management?
2. What Is the Difference Between Corporate Management and Corporate Governance?
3. What Is the Difference Between Individuals and Firms?
4. Organization of This Book
Chapter 1 Understanding Value
1. Overview
2. Measuring Value
3. The Capital Asset Pricing Model
3.1. Beta
3.2. The model
3.3. Alternative models
3.4. Weighted Average Cost of Capital
4. Cash Flow
5. Valuing a Firm
5.1. Equity value
5.2. Sensitivity analysis
6. Financial Modeling
6.1. Investment
6.2. Financing
6.3. Free cash flow
6.4. Summary
7. Conclusion
Chapter 2 Making Capital Investment Decisions
1. Overview
2. Decision Rules
2.1. Investment in projects
2.1.1. Net Present Value
2.1.2. Internal Rate of Return
2.2. Investment in firms
2.2.1. DCF in capital investment and M&A
2.2.2. Comparable
3. Performance Evaluations
3.1. Economic profit
3.2. Return on invested capital
3.3. IRR
4. Capability Building
4.1. Firm capabilities
4.2. Real options
5. Conclusion
Chapter 3 Understanding Asymmetric Information in Financial Markets
1. Asymmetric Information
1.1. Adverse selection and moral hazard
2. Mitigating Asymmetric Information
2.1. Disclosure rules
2.2. Signaling
2.3. Financial intermediaries
2.4. Financial instruments
3. Asymmetric Information in Initial Public Offerings
3.1. Initial public offering underpricing
3.2. Alternative listing avenues
3.2.1. Auction
3.2.2. Direct listing
3.2.3. Special purpose acquisition companies
4. Asymmetric Information and the Agency Problem
4.1. Agency problem
5. Conclusion
Chapter 4 Optimizing Capital Structure
1. Debt and Equity
2. The Modigliani–Miller Theorem
2.1. Tradeoff theory
3. Capital Structure and the Cost of Capital
3.1. Constant debt ratio
3.2. Constant debt amount
4. Capital Structure Under Conflicts of Interest
4.1. Pecking order theory
4.2. Agency theory
5. Debt–Shareholders Conflict
5.1. Asset substitution problem
5.2. Debt overhang problem
5.2.1. Project finance
6. Conclusion
Chapter 5 Merging and Acquiring Businesses
1. Overview
1.1. Synergy
1.2. Enforcement of competition law
1.3. Distribution of synergy
2. Choice of Payment
2.1. Cash payment
2.2. Stock payment
2.3. Summary
2.3.1. Ownership
3. Legal Frameworks
3.1. Legal structures
3.1.1. Merger
3.1.2. Share purchase
3.1.3. Asset purchase
3.1.4. Spin-off
3.1.5. Split-off
3.1.6. Carveout
3.2. Contractual arrangements
3.2.1. Representations and warranties
3.2.2. Earnout
3.2.3. Material adverse change
3.2.4. Breakup fee
3.3. TOB rules
3.4. Appraisal right
4. Anti-takeover Measures
4.1. Anti-takeover defenses by firms
4.1.1. Duties of the board
4.2. Government intervention
5. Post-merger Integration
5.1. Realizing synergy
5.2. Control and autonomy
5.3. Failures and overconfidence
6. Conclusion
Chapter 6 Managing Shareholder and Stakeholder Value
1. Overview
2. Framework of Duties
2.1. Duties of directors
2.2. Observed diversity
2.3. Purpose
2.4. Alternative format
3. Disclosure and Measurement
3.1. Uncertainty and discretion
3.2. Disclosure
3.3. Measurement
4. Shareholders and Changing Paradigms
4.1. Nature of shareholders
4.2. Paradigm shift
5. Conclusion
Chapter 7 Structuring Corporate Governance
1. Overview
2. Board of Directors
2.1. Board structure
2.2. Ownership structure
2.3. Board design
2.4. Dealing with misconduct
2.5. Self-assessment
3. Conflicts of Interest
3.1. Management entrenchment
3.1.1. Compensation
3.1.2. Say on pay
3.1.3. Dual stock
3.2. Conflicted transactions
3.2.1. Transactions involving controlling shareholders
3.2.2. Transactions not involving controlling shareholders
3.2.3. Summary
4. Proxy Advisors and Activism
4.1. Proxy advisors
4.2. Activism
5. Conclusion
Conclusion
1. Evolution of the Corporation
2. Evolution of the Board
3. Evolution of Financial Markets
4. Final Words
Index
