BUST10012-CORPORATE FINANCE

Answer ANY THREE questions

1. How have researchers tested theories about companies’ gearing policies? Your answer should focus mostly on the various research designs and their purpose, rather than the theories tested or results. [100 marks]

2. Write short explanations of the evidence on any three of the following questions.

i) Are repurchases replacing regular dividends or augmenting them?

ii) Do (some) repurchases affect capital expenditure and employment in repurchasing companies? iii) Do payout decisions convey information about companies’ future profits?

iv) Do companies take personal taxes into account in setting their payout policies? [100 marks]

3. In the literature on seasoned equity offers, the primary economic function of the issue process is either certification of issuer value, or marketing of the shares. Explain these two views, and summarise the evidence presented in favour of each of them. [100 marks]

4.

a) Most large companies are either listed on a stock market and have dispersed ownership, or they are family-controlled. Explain the potential benefits and costs of each type of company ownership, and the features of modern governance arrangements that have evolved to control agency costs. [40 marks]

b) Explain the evidence on how intervention by activist investors creates value in targeted companies. [60 marks] [Total for question: 100 marks]

5.

a) According to the ‘law and finance’ view, what are the consequences (in terms of finance) of having a legal system based on (i) common law and (ii) civil law? [40 marks]

b) To what extent does the evidence support the predictions of the law and finance view? [60 marks] [Total for question: 100 marks]

6. Why might PE investors add value to companies they invest in? Do they actually do so? Your answer should include both the results of research and the research methods used. [100 marks]