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Behavioral Finance Economics 437 – Spring 2009 Professor Burton. March 2008 Oct-Nov 2008 April 2009. Class on Sunday 2PM – 4PM Picnic, Friday, 4PM Apr 24th. Balance Sheet XYZ Corp As of March 31st, 2009. Assets.

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Behavioral finance economics 437 spring 2009 professor burton
Behavioral FinanceEconomics 437 – Spring 2009Professor Burton

March 2008 Oct-Nov 2008 April 2009

April 16, 2009


Class on sunday 2pm 4pm picnic friday 4pm apr 24th
Class on Sunday2PM – 4PMPicnic, Friday, 4PM Apr 24th

April 16, 2009


Balance sheet xyz corp as of march 31st 2009
Balance SheetXYZ CorpAs of March 31st, 2009

Assets

Liabilities

Net Worth (= Assets - Liabilites)

April 16, 2009


Income statement xyz corporation for the three month period ending march 31 st 2009
Income StatementXYZ Corporationfor the three month period ending March 31st, 2009

Revenues: xxxxx.xx

Expenses: - yyyyy.yy

________

Net Income zzzzzz.zz

Taxes - qqq.qq

Net Income After Tax nnnnn.nn

April 16, 2009


Difference between bal sheet and inc statements
Difference between Bal Sheet and Inc Statements

  • Balance sheet designed to show net value of the company

    • Always a specific moment in time

  • Income Statement

    • Connects one Bal Sheet to another

    • Always a flow over a specific time: starts on a certain date and ends on a certain date

    • Quarterly…..Annual, most common income statements

April 16, 2009


Corporate governance
Corporate Governance

  • We speak here of “public companies.” (Private companies are unlikely to have corporate governance, especially when there is a single owner)

  • Does the Board of Directors act as a single owner of the company would act?

    • If not, then there is a failure of corporate governance

    • Principle – agent problem: shareholders are the principles; management is the agent (board of directors are also agents)

April 16, 2009


Evidence that there may be problems with corporate governance
Evidence That There May Be Problems with Corporate Governance

  • Executive Compensation

    • Stock Options

    • Managed Earnings

  • Mergers and Acquisitions

April 16, 2009


Mergers acquisitions
Mergers & Acquisitions Governance

  • If company A buys company B, is that in the best interest of shareholders of company A (or B?)

  • If company A and B merge, is that in the best interest of shareholders of A and B

  • Different from a leveraged buyout, which is almost always in the interest of a shareholder

April 16, 2009


What is a leveraged buyout lbo
What is a leveraged buyout (LBO)? Governance

  • Person (or thing) A bids for a public (could be private) company

    • Friendly buyout

    • “Hostile” buyout

  • Sometimes buyer has no cash (or anything)

    • How does he buy it (if no cash)

    • Milken and junk bonds

    • Modern version: private equity fund

April 16, 2009


The End Governance

April 16, 2009


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