University of Colorado-Boulder



University of Colorado-Boulder

College of Business and Administration

FNCE 4820 Sanjai Bhagat

Seminar in Investment Banking Office: BUS 490

Fall 1999 sanjai.bhagat@colorado.edu

TU 8:00 am – 10:50 am, BUS 207 Tel. 303-492-7821

Office Hours: Tu (12:30 pm – 1:30 pm), Wed (12:30 pm – 1:30 pm)

I. Course Objective

The objective of the course is to provide the student with a state-of-the-art understanding of investment banking. Investment bankers advise and assist corporations to: acquire other firms, sell their own firms, spin-off or sell specific operating units, go private through leveraged buyouts (LBOs) and management buyouts (MBOs).

Investment bankers also market to the public a corporation's stocks and bonds via an underwriting arrangement; stock underwriting includes both initial public offerings (IPOs) and seasoned issues. Investment bankers also help firms design hybrid securities such as convertibles, bonds with warrants, and other exotic securities designed to meet a firm's specific financing need or to appeal to particular investor preferences.

This course will provide a definite competitive edge to students planning careers in investment banking, consulting, and corporate finance. Besides having investment bankers and other senior corporate finance business-persons as guest speakers in class, a focus of the class would be to introduce the student to the investment banking profession.

II. Course Materials

Course materials consist of Investment Valuation (Wiley, by A. Damodaran, 1996), and scholarly journal articles and working papers. Copies of these articles and papers will be kept on reserve in the Business Library.

Lecture notes/overheads and class announcements can be accessed from my home-page:



III. Course Enrollment

This is a limited-enrollment class; you need my permission to enroll in the class. If you are interested in enrolling for this class, please provide me with the following information:

1. Your resume.

2. A one-page statement of why you would like to be in this course; for example, what are your future professional plans.

3. A letter of recommendation from somebody that has recently taught you a course.

4. A list of the Finance and Accounting courses you have taken, the names of the instructors you had these courses from, and the grades you received.

IV. Course Outline and Readings

A. Valuation

1. Investment Valuation (Wiley, by A. Damodaran, 1996), Chapter 1, Introduction to Investment Valuation.

2. Investment Valuation Chapter 2, Approaches to Valuation.

3. Investment Valuation Chapter 4, Estimation of Discount rates.

4. Investment Valuation Chapter 6, Estimation of Cashflows.

5. Investment Valuation Chapter 13, Special cases: Firms with Product Options, Private Firms.

A6. L. Trigeorgis, “Real Options and Interactions with Financial Flexibility,” 1993, Financial Management 22, 202-224.

A7. Investment Valuation Chapter 18, Valuing Product Patents as Options.

A8. 2. S. Bhagat, “Real Options in the Telecommunications Industry,” forthcoming 1999, in Real Options and Telecommunications.

A9. B. Lev and P. Zarowin, “The Market Valuation of R&D Expenditures,” 1998, NYU working paper.

A10. Z. Deng, B. Lev, and F. Narin, “Science & Technology as Predictors of Stock Performance, “ 1999, NYU working paper.

A11. B. Hall, “Innovation and Market Value,” 1999, UC-Berkeley working paper.

A12. E. Amir and B. Lev, “Value-relevance of Non-Financial Information: The Wireless Communication Industry,” Journal of Accounting & Economics 22, 1996, 3-30.

B. Mergers and Takeovers

B1. M.C. Jensen and C.W.Smith, "Stockholder, Manager, and Creditor Interests: Application of Agency Theory," Recent Advances in Corporate Finance, 1985, 93-132.

B2. A.N. Berger, R.S. Demsetz, and P.E.Strahan, “The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future,” Journal of Banking & Finance 23, 1999, 135-194.

B3. S. Bhagat, A. Shleifer, and R.W. Vishny, "Hostile Takeovers in the 1980s: The Return to Corporate Specialization," Brookings Papers on Economic Activity, 1990, 1-84.

B4. M.S. Scholes and M.A. Wolfson, "Taxable Mergers and Acquisitions," in Taxes and Business Strategy, 1992, chapters 23 and 24.

B5. G. Andrade, “Do Appearances Matter? The Impact of EPS Accretion and Dilution of Stock Prices,” 1999, University of Chicago working paper.

B6. S. Bhagat, D. Hirshleifer and R. Noah, "The Effect of Takeovers on Shareholder Value" 1999, Ohio State University working paper.

Spinoffs and Corporate Refocusing

C1. P. G. Berger and E. Ofek, “Causes and Effects of Corporate Refocusing Programs,” Review of Financial Studies 12, 1999, 311-346.

C2. L Daley, V. Mehrotra, and R. Sivakumar, “Corporate Focus and Value Creation: Evidence fron Spinoffs,” 1997, Journal of Financial Economics 45, 257-281.

C3. S. Krishnaswami and V. Subramaniam, “Information asymmetry, Valuation, and the Corporate Spin-off Decision,” 1999, Journal of Financial Economics 53, 1999, 73-112.

C4. F. A. Schlingemann, R.M. Stulz, and R. A. Walkling, “Corporate Focusing and Internal Capital Markets,” 1999, Ohio State University working paper.

C5. E.F.Fama, “Market Efficiency, Long-term Returns, and Behavioral finance,” Journal of Financial Economics 49, 1998, 283-306.

C6. J. J. McConnell, M. Ozbilgin, and S. Wahal, “Spinoffs, Ex Ante,” 1998, Purdue University working paper.

D. Capital Structure

D1. M. J. Barclay and C. W. Smith, “On Financial Architecture: Leverage, Maturity and Priority,” Journal of Applied Corporate Finance 8, 1996, 4-17.

D2. T.C. Opler, M. Saron, and S. Titman, “Designing Capital Structure to Create Shareholder Value,” Journal of Applied Corporate Finance 10, 1997, 21-32.

D3. S. Bhagat, J.A. Brickley and J.L. Coles, "The Costs of Inefficient Bargaining and Financial Distress: Evidence from Corporate Lawsuits," Journal of Financial Economics 35, 1994, 221-248.

D4. D. Kovenock and G.M.Phillips, “Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions,” Review of Financial Studies 10, 1997, 767-804.

E. Investment Banking

E1. C.W. Smith, Jr., "Investment Banking and the Capital Acquisition Process," Journal of Financial Economics 15, 1986, 3-30.

IPOs

E2. N. Jegadeesh, M. Weinstein, and I. Welch, “An Empirical Investigation of IPO Returns and Subsequent Equity Offerings,” Journal of Financial Economics 34, 1993, 153-176.

E3. W.H. Mikkelson, M.M.Partch, and K.Shah, “Ownership and Operating Performance of Companies that go Public,” Journal of Financial Economics 44, 1997, 281-308.

Reputation in IPOs and Takeovers

E4. R.B. Carter and S. Manaster, “Initial Public Offering and Underwriter Reputation,” Journal of Finance 45, 1990, 1045-1067.

E5. R.B. Carter, F.H. Dark, and A.K. Singh, “Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks,” Journal of Finance 53, 1998, 285-312.

E6. N.R. Prabhala and M. Puri, “How Does Underwriter Price Support affect IPOs?” 1998, Stanford University working paper.

E7. P. Brockman, “The Role of Reputation Capital in the Investment Banking Industry,” Applied Economics Letters 7, 1996, 455-458.

E8. J.R. Kale, O. Kini, and E. E. Ryan,"On the Participation and Reputation of Financial Advisors in Corporate Acquisitions," 1999, Emory University working paper.

E9. H. Servaes and M. Zenner, “The Role of Investment Banks in Acquisitions,”Review of Financial Studies 9, 1996, 787-816.

E10. L. Allen, J. Jagtiani, and A. Saunders, “ The Role of Financial Advisors in Mergers and Acquisitions,” 1999, NYU working paper.

E11. R. M. McLaughlin, “Does the form of compensation matter? Investment banker fee contracts in tender offers,” 1992, Journal of Financial Economics 32, 223-260.

E12. K.A. Carrow, “Underwriting Spreads and Reputational Capital,” 1999, Journal of Financial Research 22, 15-28.

Conflict of Interest

E13. H. Lin and M.F. McNichols, “Underwriting Relationships, Analysts’ Earnings Forecasts and Investment recommendations,” Journal of Accounting and Economics 25, 1998, 101-128.

E14. R.P. Beatty, H. Bunsis, and J.R.M. Hand, “The Indirect Economic Penalities in SEC Investigations of Underwriters,” Journal of Financial Economics 50, 1998, 151-185.

Innovation

E15. P. Tufano, “Securities Innovations: A Historical and Functional Perspective,” 1995, Journal of Applied Corporate Finance 7, 90-104.

E16. P. Tufano, “Financial Innovations and First Mover Advantages,” 1992, Journal of Applied Corporate Finance 5, 83-87.

Venture Capital

E17. J. Lerner, "Venture Capitalists and the Decision to go Public," Journal of Financial Economics 35, 1994, 293-316.

E18. S. Bhagat, “Why Do Venture Capitalists Charge Such High Discount Rates?” 1999, University of Colorado working paper.

E19. P. Gompers and J. Lerner, “What Drives Venture Capital Fundraising?” Harvard University working paper, 1999.

E20. B.S. Black and R.J. Gilson, “Venture Capital and the Structure of Capital Markets,” Journal of Financial Economics 47, 1998, 243-277.

IV. Course Schedule

Aug 24 Introduction and Organization. Valuation.

Aug 31 Valuation. Vist. Speaker: Dr.Scott Stromatt, Bigelow & Co.

Sep 7 Valuation. Vist. Speaker: Mr. Jeff Galgano, JD Edwards

Sep 14 Real Options. Term Paper-Proposal Due. Vist. Speaker: Mr. Robert Allison, Daniels & Associates

Sep 21 Value-relevance of Innovation and Non-fin. Information. Vist. Speaker: Mr. Robert Kennedy, Putnam Lovell

Sep 28 Mergers and Takeovers. Vist. Speakers: Ms. Amy Steffek, Tucker Cleary; Mr. Craig Veldhuizen, Rampart Associates

Oct 5 Mergers and Takeovers. Vist. Speaker: Mr. Michael Sullivan, Sonnenblick Goldman

Oct 12 Corporate Refocusing. Vist. Speaker: Mr. Marc Weisberg,Qwest Communications

Oct 19 Investment Banking and IPOs. Vist. Speaker: Mr. Paul McMenmy, Prudential Securities

Oct 26 Investment Banking and Reputation. Vist. Speaker: Mr. Eric Corrigan, Salomon Smith Barney

Nov 2 Investment Banking and Innovation.

Nov 9 Investment Banking and Conflict of Interest. Vist. Speaker: Mr. Michael Imhoff, Hanifen Imhoff

Nov 16 Investment Banking and Venture Financing. Term Paper Due.

Nov 23 Student Presentations. Vist. Speaker: Mr. Marshall Wallach, Wallach Company Investment Bankers

Nov 30 Student Presentations.

Dec 7 Student Presentations.

Final Exam Wednesday, December 15, 7:30 am

V. Course Policies

A. Grading

The grade breakdown is as follows:

Item Weight

A. Class participation and attendance 25%

B. Term Paper (proposal) 5%

C. Term Paper (write-up) 25%

D. Term Paper ( presentation) 20%

E. Final Exam 25%

A. Class participation is critical to the success of this course. Student questions and comments are expected and welcome. Attendance will be taken at random (unannounced). Each student is required to bring an index card on August with the following information on it: picture, name, previous finance courses taken, expectations from this course, career goals, hobbies and interests. Students are requested to place their namecards (to be provided) in front of their desk at all times during class.

The class will be conducted in a professional manner: Students and the instructor are expected to be prepared for each class, and behave professionally in the class.

B. Proposals for the term paper are due on September 14, 1999, before the start of class. The proposal should answer the following two questions: What will the paper be about? Why is this topic interesting and important? You should also include a list of at least four academic papers that you intend to read as background for your paper. The proposal should be no more than a page.

C. and D. The term paper is due on November 16, 1999, before the start of class. Student presentations are scheduled for November 23, November 30, and December 7. The paper can be on any topic that will be covered in the course. The paper should include a critical survey of the literature and some original analysis that would be of interest to somebody in the real world: an investment banker, CFO, venture capitalist, consultant, or government regulator/legislator. The paper (including exhibits) should be between fifteen and twenty typed, double-spaced pages (twelve-point font, one-inch margin all-around).

The paper is an individual exercise: While you are welcome and encouraged to talk to your friends, work-associates, instructors, etc. regarding ideas, facts, institutional practices, real cases, and so on, you should write the paper without assistance from anyone. Similarly, the presentation is also an individual exercise.

Please note that the first assignment (term-paper proposal) is due on September 14, 1999. However, you should set up an appointment to see me to discuss your term paper proposal – by September 7, 1999.

E. The exam will consist of essay-type questions, and will be closed-book, closed-notes, and in-class. The exam will be based on study questions that will be handed out during the semester. The exam will be graded anonymously in the sense that students will not write their names on the exam and at the time I grade the exam I will not know whose exam it is.

B. Readings

All assigned readings are required. If you wish to get the most out of my lectures, you are advised to read the “critical portions” of the assigned readings for a particular class before that class. The critical portions of a reading include the abstract, introduction, summary/conclusions of the paper. You might wish to read the main body of the paper after we have discussed it in class.

Guidelines for the Term Paper

Suggested order for the sections:

Cover Page

Title, Name, Course, Date

Executive Summary

No more than one page. The most important part of your paper! Briefly explain what the paper is about, why this is an interesting and important topic, and your main findings/conclusions. Consider an investment banker, CFO, venture capitalist, consultant, or government regulator/legislator as your primary reader of this page.

Introduction

What is the paper about?

Motivation: Why is this interesting and important to study/read?

Overview of the paper.

(Main Body)

(Footnotes on same page.)

Please consider using sub-sections to better organize your paper, and improve its readability.

Please check the transition between paragraphs.

Summary and Conclusions

Exhibits (Tables, Graphs, etc.)

Captions and legends in the exhibits should make them self-explanatory. Cite data sources.

References

____________________________________________________________________

Check for grammar and spelling.

All arguments/assertions should be supported using:

logical constructs, and/or

theoretical considerations (cite references), and/or

previous empirical evidence (cite references).

You should revise the paper at least four times over a period no less than a week.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download