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Financial Strategy, Second Edition

Book Description

Significantly revised and updated, this second edition of Financial Strategy is vital reading not only for MBA and advanced undergraduate students of Financial Strategy and Financial Management, but also for finance professionals.

The majority of articles and case studies in this 2nd edition of Financial Strategy are new and reflect the recent developments in financial strategy, which have added value to organisations and improved their performance.

Combining both finance and accounting articles and covering the public and private sectors, Financial Strategy addresses issues relevant to UK and US listed companies as well as an international audience.

Key themes addressed are:

Trends in finance theory

Adding value through investment, financing and risk management

Measuring performance

Corporate governance

Financial Strategy 2nd Edition is a Course Reader for The Open University Business School MBA Course: B821 Financial Strategy.

Table of Contents

  1. Cover Page
  2. Preface
  3. Title Page
  4. Copyright
  5. Contents
  6. Introduction
    1. NOTE
  7. Section 1: Trends in Finance Theory
    1. Section Overview
    2. NOTE
    3. Chapter 1: The World was their Oyster: International Diversification Pre-World War I
      1. DEFINING RISK AND RETURN
      2. MANAGING RISK
      3. INTERNATIONAL INVESTMENT
      4. EARLY DIVERSIFICATION STRATEGIES
      5. “SCIENTIFIC” APPROACH TO DIVERSIFICATION
      6. DIVERSIFICATION IN PRACTICE
      7. CONCLUSION
      8. NOTES
      9. REFERENCES
    4. CASE STUDY 1: Global Evidence on the Equity Risk Premium
      1. THE NEED FOR A LONG-RUN PERSPECTIVE
      2. PRIOR ESTIMATES OF THE RISK PREMIUM
      3. NEW EVIDENCE
      4. VARIATION IN RISK PREMIUMS OVER TIME
      5. FROM THE PAST TO THE FUTURE
      6. REVISITING HISTORY
      7. EXPECTED RISK PREMIUMS
      8. CONCLUSION
      9. NOTES
    5. Chapter 2: Behavioral Finance
      1. 1. INTRODUCTION
      2. 2. COGNITIVE BIASES
      3. 3. THE LIMITS TO ARBITRAGE
      4. 4. APPLICATIONS OF BEHAVIORAL FINANCE
      5. 5. CONCLUSIONS
      6. NOTES
      7. REFERENCES
    6. CASE STUDY 2: Do Fundamentals – or Emotions – Drive the Stock Market?
      1. WHEN MARKETS DEVIATE
      2. MOMENTUM AND OTHER MATTERS
      3. PERSISTENT MISPRICING IN CARVE-OUTS AND DUAL-LISTED COMPANIES
      4. MARKETS AND FUNDAMENTALS: THE BUBBLE OF THE 1990S
      5. FOCUS ON INTRINSIC VALUE
      6. NOTES
  8. Section 2: Adding Value Through Investment
    1. SECTION OVERVIEW
    2. NOTES
    3. Chapter 3: Why Bad Projects Are So Hard to Kill
      1. FAITH THAT WOULDN'T BE SHATTERED
      2. A BELIEF IN CRYSTALS
      3. THE SEDUCTIVE APPEAL OF COLLECTIVE BELIEF
      4. AVOIDING THE DANGERS OF BLIND FAITH
      5. IT COULDN'T HAPPEN HERE
    4. Chapter 4: Realizing the Potential of Real Options
      1. NEW INSIGHTS AND A NEW VOCABULARY
      2. THE SEARCH FOR KILLER APS
      3. REAL OPTIONS IN THE CROSSHAIRS
      4. BRIDGING THE GAP BETWEEN THEORY AND PRACTICE
      5. GOING FORWARD
      6. NOTES
    5. CASE STUDY 3: Real Options
      1. BEST PRACTICE IN MANAGING REAL OPTIONS
      2. HOW BP MAXIMIZES THE VALUE OF ITS OILFIELDS
      3. POWER MASTER-STROKE BY POWERGEN
      4. NOTES
    6. Chapter 5: Mergers, MNEs and Innovation
      1. 1. INTRODUCTION
      2. 2. RESEARCH ON MERGER PERFORMANCE
      3. 3. MICRO-MERGER SNAFUS: THE UNDERESTIMATED PROBLEM OF INTEGRATING TECHNOLOGIES
      4. 4. THE CONUNDRUM: PERFORMANCE SO POOR, DEALS SO MANY
      5. 5. THE NEED FOR AN EXPANDED RESEARCH AGENDA TO INCLUDE DEAL-MAKERS AND THE IMPACT OF MERGERS ON INNOVATION
      6. 6. SUMMARY AND CONCLUSION
      7. REFERENCES
    7. CASE STUDY 4: Why Most Cross-Border Deals End in Tears
      1. REFERENCES
  9. Section 3: Adding Value through Financing
    1. SECTION OVERVIEW
    2. NOTES
    3. Chapter 6: The Capital Structure Puzzle
      1. THE THEORIES 1
      2. THE EVIDENCE
      3. TOWARD A UNIFIED THEORY OF CORPORATE FINANCIAL POLICY
      4. NOTES
    4. Chapter 7: Disappearing Dividends
      1. TIME TRENDS IN CASH DIVIDENDS
      2. CHARACTERISTICS OF DIVIDEND PAYERS
      3. THE PROPENSITY TO PAY DIVIDENDS
      4. SHARE REPURCHASES
      5. CONCLUSIONS
      6. NOTES
    5. Chapter 8: The Value of Share Buybacks
      1. EPS MAY BE UP, BUT INTRINSIC VALUE REMAINS FLAT
      2. TAXES SHIELD VALUE FROM LEVERAGE
      3. SENDING SIGNALS
      4. NOTES
    6. CASE STUDY 5: Capital Ideas
    7. CASE STUDY 6: Death of the Dividend?
      1. AIMS, OBJECTIVES AND THEORETICAL SETTING
      2. METHODOLOGY
      3. RESULTS: DIMINISHING DIVIDEND SIGNALLING POWER
      4. RESULTS: GREATER RELIANCE ON BUYBACK SCHEMES
      5. RESULTS: THE CASE OF INTEL
      6. RESULTS: GREATER PRESSURE FROM SHAREHOLDERS TO CONDUCT BUYBACKS
      7. CAVEATS
    8. CASE STUDY 7: Sciona: A Venture Capital Case Study
      1. SCIONA
      2. THE FUNDING HISTORY
      3. THE VENTURE CAPITAL COMPANIES
      4. SCIONA'S OBSERVATIONS OF THE VENTURE CAPITAL EXPERIENCE
    9. Chapter 9: Initial Public Offerings
      1. 1. INTRODUCTION
      2. 2. VALUING IPOs
      3. 3. NEW ISSUES UNDERPRICING
      4. 4. “HOT ISSUE” MARKETS
      5. 5. LONG-RUN PERFORMANCE
      6. 6. GOING PUBLIC AS A STAGE IN THE LIFE CYCLE OF A FIRM'S EXTERNAL FINANCING
      7. 7. CONTRACTUAL FORMS AND THE GOING PUBLIC PROCESS
      8. 8. SUMMARY
      9. SUGGESTED READING
    10. CASE STUDY 8: Google Press Cuttings
      1. (A) ARE YOU ABOUT TO GET GOOGLED?
      2. (B) IGNORE WALL ST'S WHINING – GOOGLE'S IPO WORKED
      3. (C) GOOGLE'S EARNINGS MORE THAN DOUBLE 1ST QUARTERLY RESULTS AS PUBLIC FIRM STRONG
      4. (D) HOW HIGH CAN GOOGLE FLY?
      5. (E) BOWLING FOR GOOGLE
      6. (F) GOOGLE'S RISING SHARE PRICE IS COLD COMFORT FOR INVESTORS
  10. Section 4: Adding Value through Risk Management
    1. SECTION OVERVIEW
    2. Chapter 10: Operating Exposure
      1. EXCHANGE RATE ENVIRONMENT
      2. UNDERSTANDING OPERATING EXPOSURE
      3. MEASURING OPERATING EXPOSURE
      4. NOTES
    3. Chapter 11: Currency Exchange Trading and Rogue Trader John Rusnak
      1. INTRODUCTION
      2. CURRENCY MARKETS
      3. EXCHANGE CONTRACTS
      4. SPOT EXCHANGE
      5. FORWARD EXCHANGE
      6. CURRENCY FUTURES AND SWAP TRANSACTIONS
      7. OPTIONS
      8. CURRENCY HEDGING
      9. TRADING STRATEGY OF JOHN RUSNAK
      10. BOGUS OPTIONS
      11. FALSIFIED DOCUMENTS
      12. PRIME BROKERAGE ACCOUNTS
      13. VALUE AT RISK CALCULATIONS
      14. SALE OF OPTIONS
      15. LOSSES REVEALED
      16. THE LUDWIG REPORT
      17. TECHNOLOGY
      18. ACCOUNTING PRACTICES
      19. CONCLUSION
      20. NOTES
      21. REFERENCES
    4. Chapter 12: Value at Risk
      1. WHAT IS VAR?
      2. VAR AND CORPORATE RISK MANAGEMENT OBJECTIVES
      3. VAR AND THE GREAT DERIVATIVES DISASTERS
      4. ALTERNATIVES TO VAR
      5. CONCLUSION
      6. NOTES
      7. APPENDIX: CALCULATING VAR
      8. NOTES
    5. Chapter 13: Learning to Live with Fixed Rate Mortgages
      1. BACKGROUND
      2. THE MORTGAGE WORLD BEFORE FIXED RATES
      3. THE EMERGENCE OF FIXED RATE MORTGAGES
      4. RISK MANAGEMENT ISSUES
      5. CONCLUSIONS
      6. THE FUTURE
      7. REFERENCES
    6. Chapter 14: Credit Derivatives
      1. TYPES OF CREDIT DERIVATIVES
      2. MARKET SIZE AND MAJOR PARTICIPANTS
      3. HOW CREDIT DERIVATIVES ARE USED
      4. NOTES
      5. REFERENCES
    7. CASE STUDY 9: Journey to Junk
    8. CASE STUDY 10: Who Rates the Raters?
      1. STEP BY STEP
      2. WE'RE NOT WATCHDOGS
      3. UNDER-RATED?
      4. A NATURAL OLIGOPOLY
      5. NOTE
  11. Section 5: Measuring Performance
    1. SECTION OVERVIEW
    2. NOTES
    3. Chapter 15: What can be Expected from Accounting Standards?
      1. 1. TARGETING THE USER
      2. 2. THE TYRANNY OF NET INCOME AND RATIOS
      3. 3. THE CULTURAL DEBATE ON VOLATILITY
    4. CASE STUDY 11: Queens Moat Houses plc
      1. PRIOR YEAR ADJUSTMENTS AND RECLASSIFICATIONS
    5. CASE STUDY 12: Learn by Numbers
    6. Chapter 16: A Star to Sail By?
      1. ALPHABET SOUP
      2. CASH IS FACT, PROFIT IS OPINION
      3. VALUE FOR MONEY?
    7. Chapter 17: EVA Implementation, Market Over-Reaction and the Theory of Low-Hanging Fruit
      1. LITERATURE REVIEW
      2. SAMPLE SELECTION
      3. RESEARCH METHODOLOGY
      4. RESULTS
      5. SENSITIVITY
      6. SUMMARY
      7. NOTES
      8. REFERENCES
    8. Chapter 18: Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part I
      1. THE BALANCED SCORECARD EMERGES
      2. INTANGIBLE ASSETS: VALUATION VS. VALUE CREATION
      3. THE BALANCED SCORECARD SUPPLEMENTS CONVENTIONAL FINANCIAL REPORTING
      4. STRATEGY MAPS
      5. STAKEHOLDER AND KEY PERFORMANCE INDICATOR SCORECARDS
      6. APPLYING THE BSC TO NONPROFITS AND GOVERNMENT ORGANIZATIONS
      7. BEYOND MEASUREMENT TO MANAGEMENT
      8. NOTES
      9. REFERENCES
    9. Chapter 19: Performance Indicators
      1. CONCEPT
      2. PREPARATION
      3. IMPLEMENTATION
      4. USE
      5. CONCLUSION
      6. NOTE
  12. Section 6: Governance and Ethics
    1. SECTION OVERVIEW
    2. Chapter 20: It's Time to Rebalance the Scorecard
      1. THE CORRECTIVE ACTIONS TAKEN SO FAR
      2. SOME CAUSES OF SUCH BEHAVIORS
      3. WHAT GETS MEASURED GETS DONE – ENTER THE BALANCED SCORECARD
      4. REBALANCING THE SCORECARD
      5. THE REBALANCING ACT
      6. WHAT ARE CORPORATIONS CURRENTLY DOING TO INCLUDE SOCIAL RESPONSIBILITY ISSUES ON THEIR SCORECARD?
      7. IMPLICATIONS AND CONCLUSIONS
      8. NOTES
    3. Chapter 21: Stakeholder Capitalism
      1. NOTE
    4. CASE STUDY 13: The State of Denial We're In
      1. TEN YEARS ON, WILL HUTTON IS STANDING BY HIS BESTSELLING CRITIQUE OF BRITISH CAPITALISM
      2. MODEL MISBEHAVIOUR
    5. Chapter 22: Controversy Incorporated
      1. CONTENTIOUS ATTRACTIONS
      2. EARNING THE RIGHT TO OPERATE PROFITABLY
      3. NOTES
    6. CASE STUDY 14: An Interview with Microsoft's CFO
      1. NOTES
    7. CASE STUDY 15: Corporate Governance Failures: To What Extent is Parmalat a Particularly Italian Case?
      1. INTRODUCTION
      2. OWNERSHIP AND CONTROL STRUCTURES: PARMALAT VS ITALY
      3. THE MONITORING STRUCTURE: WHEN THE MONITORED CONTROLS THE MONITORS
      4. A REVIEW OF PARMALAT'S COMPLIANCE WITH THE ITALIAN CODE OF BEST PRACTICE
      5. CONCLUDING REMARKS
      6. NOTES
      7. REFERENCES
    8. CASE STUDY 16: Companies Still Failing to Fill the Funding Gap
  13. Index