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Rethinking MBA Curriculum in the Finance Discipline
Supported by the Alfred P. Sloan Foundation
Presented by: John R. Becker-Blease, Ph.D.Assistant Professor Finance
Washington State University, Vancouver
Moderated by
Maureen Scully, Professor of Management, University of Massachusetts,Boston and Consultant to the Aspen Institute CGA Project,
The Aspen Institute CorporateGovernance and Accountability Project:
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Incorporating Stakeholders into theCorporate Finance Curriculum
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Goals of WSUVsStakeholder-Engagement Model
Stakeholder-focused leadership requires:
Understanding the vital interdependence betweenbusinesses and critical stakeholders such as employees,investors, customers, suppliers, and public constituencies
Adopting an executive level perspective in making decisionsand taking actions that build strong long-term relationships
with stakeholders
And applying theory to solve practical problems.
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WSU MBA Curriculum
Mktg 565 Managing for Long-Term Performance
Acct 533 Administrative Control and Managerial Accounting
MgtOp 590 Strategy Formulation and Organizational Design
MgtOp 591 Statistical Analysis for Business Decisions MIS 580 Information Systems Management
FIN 526 Problems in Financial Management
MgtOp 593 Managerial Leadership and Productivity
Mktg 506 Marketing Management and Administrative Policy
MgtOp 589 Managing Value-Chain Partnerships
MgtOp 585 Negotiations
MgtOp 587 Business Ethics
MgtOp 702 Final Oral Exam
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Financial Intermediation ResearchSociety
Teaching business ethics, always something of anembarrassment, may simply come to be teaching
Finance well!
Teaching Finance correctly integrates ethics intothe business curriculum naturally, without self-
consciousness or embarrassment
- Stuart Greenbaum Corporate Governance and theReinvention of Finance
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Objective Function
We cannot maximize the long-term marketvalue of an organization if we ignore or
mistreat any important constituency
- Michael Jensen Value Maximization, Stakeholder Theory,and the Corporate Objective Function
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Course Modules
Module 1: Review
Module 2: Goal of the Corporation
Module 3: Valuation Module 4: Capital Structure
Module 5: Agency Theory & Governance
Module 6: Payout Policy
Module 7: M&A and Corporate Structure
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Teachable Questions
I. Under what conditions is short-term stockperformance the equivalent to maximizingshareholder value?
II. Who are shareholders and what are theirinterests?
III. How can markets perform efficiently ifinformation is intentionally distorted?
IV. What role should businesses play in determininggovernments protection of the commons?
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Module Contents
Learning Goals
Required and Optional Readings
Additional Materials
Pedagogical Purpose & Notes
Additional Talking Points
References
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Module 1: Review
Learning Goals Review basic concepts of time value, project and firm valuation,
capital budgeting, risk-reward, market efficiency.
Review market structures, short and long-term equilibrium,competition, normal and excess profit, barriers to entry,monopolies and monopsonies.
Readings
BMA CHs 1-12. (review of intro finance course)
Goodwin, Neva. The limitations of markets: background essay.
Graham and Harvey (2001) The theory and practice of corporatefinance: evidence from the field (particularly pages 187-209).
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Module 2: Goal of the Corporation
Learning Goals
Describe shareholder/stakeholder models
Describe perfect market assumptions
Long-term vs. Short-term view of the firm.
Legal framework for managerial decision making.
Readings
Winkler, Adam, Corporate laws or the law of business?: Stakeholders and corporategovernance at the end of history .
Stout, Lynn, 2002, Bad and not-so-bad arguments for stakeholder primacy .
Clement (2005). The lessons from stakeholder theory for U.S. business leaders
Barry, Norman, 2002. The stakeholder concept of corporate control is illogical and
impractical. Jensen, Michael, Value Maximization, Stakeholder Theory, and the Corporate
Objective Function.
Bird, Ron, A.D. Hall, F. Momente, and F. Reggiani What corporate social
responsibility activities are valued by the market?
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Module 3: Valuation
Learning Goals
Cover assumptions of adjusted weighted average cost of capital
Introduce APV
Internalization of externalities.
Overview of financial options including binomial and Black-Scholesvaluation techniques.
Fundamentals of Real Option Valuation
RequiredReadings
BMA CH 19-22.
Luehrman, Timothy A., Using APV: A better tool for valuing operations.
Luehrman, Timothy A., Investment Opportunities as real options: gettingstarted with the numbers.
Luehrman, Timothy A., Strategy as a portfolio of real options
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Module 4: Capital Structure
Learning Goals
Understand how the choice of capital structure can affect the value of assets.
Begin to identify the pervasive nature of information asymmetries and their impact ondecision-making.
Trade-Off and Pecking Order theories of capital structure
Identify how choice of capital structure can affect various stakeholders and these
stakeholders response.
Readings
BMA Chs 17-18.
Graham and Harvey (2001) The theory and practice of corporate finance: evidenceform the field (pages 209-243).
Wruck (1990) Financial distress, reorganization, and organizational efficiency .
Patrick, Steven C. Three pieces to the capital structure puzzle: The cases of AlcoStandard, Comdisco, and Revco.
Bronars, S. and D. Deere, 1991. The threat of unionization, the use of debt, and thepreservation of shareholder wealth
Noronha and Singal (2004) Financial Health and Airline Safety
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Module 5: Agency & Governance
Learning Goals
Understanding the nature of a principal-agent conflict and identify the various conflictsthat exist among the stakeholder of a firm.
Understand the role of contracting and monitoring in addressing the agency issue and
the challenges that exist for efficient contracting.
Readings
BMA Ch 12.
Jensen (1986), Agency costs of free cash flow, corporate finance, and takeovers.
Brewer, Chandra, and Hock (1999) Economic Value Added (EVA): Its uses andlimitations
Hall (2003), Six challenges in designing equity-based pay .
Jensen (2003) Paying people to lie: the truth about the budgeting process.
Bryne, John The best and worst boardsBusinessweek Dec, 1997.
McCafferty, Joseph 2008 Building an exceptional boardBusinessWeek 4-17-2008.
Stout, Lynn. 2007. The mythical benefits of shareholder control
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Module 6: Payout Policy
Learning Goals
Payout Policy relevance and irrelevance
Readings
BMA: CH 16.
Brav, Graham, Harvey, and Michaely (2005) Payout policy
in the 21st century .
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Module 7: M&A and CorporateControl
Learning Goals Description of the various forms of restructuring and the importance of the market for
corporate control. Coverage of traditional economic rationales for M&As, both compelling and not so
compelling. Understand the motivations for corporate diversification and the nature of the
evidence surrounding this issue. Understand the term managerial entrenchment, how this is accomplished, and good
and bad economic rationales for entrenchment.
Readings BMA Ch 32-34. Holmstrom and Kaplan (2001) Corporate governance and merger activity in the
United States: Making sense of the 1980s and 1990s.
Jensen (1986), Agency costs of free cash flow, corporate finance, and takeovers
Fee and Thomas (2004) Sources of gains in horizontal mergers: evidence fromcustomer, supplier, and rival firms.
Strine (2002), The social responsibility of boards of directors and stockholders inchange of control transactions: is there any there there?.
Harford (2003) Takeover bids and target directors incentives: the impact of a bid ondirectors wealth and board seats.
Gompers, Ishii, and Metrick (2003) Corporate governance and equity prices
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Q & A
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Concluding Remarks
Financial Education Association
Sept 18-20th, 2008 (Hilton Head, SC)
Financial Management Association
Oct 8th-11th, 2008 (Dallas, TX)