PDF Aswath Damodaran www.damodaran - New York University

Applied Corporate Finance: A big picture view

Aswath Damodaran



Aswath Damodaran!

1!

What is corporate finance?

Every decision that a business makes has financial implications, and any decision which affects the finances of a business is a corporate finance decision.

Defined broadly, everything that a business does fits under the rubric of corporate finance.

Aswath Damodaran!

2!

First Principles

Aswath Damodaran!

3!

The Classical Objective Function

STOCKHOLDERS

BONDHOLDERS

Hire & fire

managers

- Board

- Annual Meeting

Maximize

stockholder wealth

Lend Money

Managers

Protect

bondholder

Interests

No Social Costs

SOCIETY

Costs can be

traced to firm

Reveal

Markets are

information

efficient and

honestly and

assess effect on

on time

value

FINANCIAL MARKETS

Aswath Damodaran!

4!

What can go wrong?

STOCKHOLDERS

Have little control

over managers

Managers put

their interests

above stockholders

BONDHOLDERS

Lend Money

Significant Social Costs

Managers

SOCIETY

Bondholders can

get ripped off

Some costs cannot be

traced to firm

Delay bad

news or

Markets make

provide

mistakes and

misleading

can over react

information

FINANCIAL MARKETS

Aswath Damodaran!

5!

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