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Regular version of the site
Bachelor 2019/2020

International Corporate Finance

Type: Elective course (Management)
Area of studies: Management
Delivered by: School of Finance
When: 4 year, 3 module
Mode of studies: Full time
Language: English
ECTS credits: 3

Course Syllabus

Abstract

This course is a corporate finance course of a basic level. The key goal is to provide the student with sufficient knowledge to understand the logic of the modern financial analysis of strategic decisions in multinational corporations including investment and financing policies. The course is focused on the specific features of decision-making process in multinational corporations. The first part of the course constitutes the introduction to the analysis of operating, sovereign and institutional risks of multinational corporation. The second part of the course reviews specific tools and techniques applicable to the investment valuation of multinational company. The third part is devoted to the diversity of instruments available for emerging market company in global capital markets. The course includes 3 case studies on (1) investment valuation in multinational corporation and country risk analysis; (2) managing currency risk exposure; (3) raising capital in global capital markets. To follow the course Basic course in Accounting is a recommended prerequisite.
Learning Objectives

Learning Objectives

  • to provide the student with sufficient knowledge to understand the logic of the modern financial analysis of strategic decisions in multinational corporations including investment and financing policies
Expected Learning Outcomes

Expected Learning Outcomes

  • Know main features multinational companies and explain why we should pay attention to international character of the company
  • Know key hedging techniques applicable to currency risk of international project
  • Know how and when to use derivatives as currency risk hedging instrument
  • Know the logic and the mechanism of raising the capital by multinational companies
  • Be able to classify the risks of multinational corporation;
  • Be able to evaluate the currency risk exposure
  • Be able to apply key asset pricing models to multinational companies
  • Be able to describe the process of raising the capital by multinational companies and analyze different instruments of capital markets available for multinational companies
  • Be able to take into account the international character of the business while making equity valuation
  • Be able to value the potential investment projects of the multinational company
Course Contents

Course Contents

  • Topic 1. Introduction to International Corporate Finance. Risks of multinational corporation
    What is multinational corporation? Key features. International operations of corporation. Corporation in global capital markets. Life cycle and decision-making process in multinational corporation. Risks of multinational corporation. Operating risks: pre-completion and post-completion risks for international project. Sovereign and institutional risks: macroeconomic risks and types of expropriation. Force majeure and World market risk. Adjustments for different types of risks.
  • Topic 2. Currency risks of multinational corporation.
    Types of currency risk. Transaction exposure. Economic (operating) exposure. Translation (accounting) exposure. Sources of transaction exposure: operating cash flows in foreign currencies; financing cash flows in foreign currencies. Hedging strategies: to hedge or no to hedge. Forward market hedge. Money market hedge. Option market hedge. Boeing Illustration. Some words on Operational techniques.
  • Topic 3. Required return of multinational corporation. Cost of capital for international projects.
    Cost of capital: approaches applicable for multinational corporation. Integrated and segmented markets. Market segmentation factors. Instruments lessening the negative effects of segmented capital markets. Asset pricing models for multinational corporation. Contribution of Global, National & Industry Factors to the cost of equity. Emerging markets’ efficiency. Cost of equity valuation methods: classification based on transparency and market integration level. Local CAPM. Rene Stulz 1981 IAPM. Global CAPM: O'Brien, Stulz et al. (1999). GCAPM: limitations. Disadvantages of basic as- set pricing models. Godfrey – Espinosa Model (1996). DCAPM (2000) by Estrada. Cumulative method for return estimation. Cost of Debt of multinational corporation. Costs of Debt across Countries. In-class case study. Investment decision by Blades, Inc. and country risk analysis
  • Topic 4. Multinational Corporation in Global Capital Markets 1: Capital structure and Debt Capital Markets
    Optimal Capital Structure for multinational corporation. Going below min WACC: theory. Tradeoff amendments for multinational corporation: Availability of capital, Diversification of cash flows, Foreign exchange risk, Expectations of international portfolio investors. Value of multinationality. When and how to go to international capital markets. Money vs. capital markets: lifecycle reasoning. Multinational corporation in international debt capital markets. Types of corporate debt financing instruments. Cost of debt depending on debt instrument. Direct vs. Intermediated debt. Bank loans and syndicated credits. Bonds with embedded options. Domestic vs. Eurobond. Financial and informational covenants. Russian companies in global debt capital markets: statistics, strategy and barriers.
  • Topic 5. Multinational Corporation in Global Capital Markets 2: Equity Capital Markets.
    Motivations for Public Equity Offers. Public offerings: lifecycle reasoning. IPO motives: financing investments, transferring wealth from new shareholders to existing shareholders, increasing liquidity. Growth companies strategy for public offerings. Secondary shares public offering as a strategic step for stable companies. Some Evidence on Company’s post-IPO results. Designing a Strategy to Source Equity Globally. Scheme of Alternative Paths for a company in global capital markets. Foreign Equity Listing and Issuance. Alternative Instruments to Source Equity in Global Markets. In-class case study. Managing Tiffany currency risk exposure.
  • Topic 6. International Projects: some valuation issues.
    Logical Value Creation Roadmap for International project. Choice of Real or Nominal cash flows for valuation purpose. Valuation in countries with hyperinflation environment. Discounting foreign cash flows converted to home currency. Discounting foreign cash flows with converted cost of capital. APV and WACC methodology for international projects: Theoretical view. Accounting for standard and non-standard risks. Currency beta. Currency risk influencing cost of equity in segmented markets. Country Risk Adjustments. Scenario analysis. Incorporating political, liquidity & familiarity risks. Country risk adjustment: Goldman model. What to do if spreads in USD are not available.
  • Topic 7. Final case study discussion. Globalizing the Cost of Capital and Capital Budgeting at AES.
Assessment Elements

Assessment Elements

  • non-blocking Final exam
    (in the form of case study) Rounding of grades is applied only at the final stage of the course. All the intermediate marks are not rounded.
  • non-blocking Attendance of lectures and seminars
  • non-blocking Group in-class
  • non-blocking Home case studies
  • non-blocking Mid-term test
Interim Assessment

Interim Assessment

  • Interim assessment (3 module)
    0.2 * Attendance of lectures and seminars + 0.5 * Final exam + 0.1 * Group in-class + 0.1 * Home case studies + 0.1 * Mid-term test
Bibliography

Bibliography

Recommended Core Bibliography

  • Butler, K. C. (2012). Multinational Finance : Evaluating Opportunities, Costs, and Risks of Operations (Vol. 5th edition). Hoboken, NJ: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=480242
  • Damodaran, A. (2012). Investment Valuation : Tools and Techniques for Determining the Value of Any Asset (Vol. 3rd ed). Hoboken, New Jersey: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=442924

Recommended Additional Bibliography

  • Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2013). Multinational Business Finance: Global Edition (Vol. Global ed., 13th ed). Boston [Mass.]: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1417955
  • Huyghebaert, N., & Van Hulle, C. (2006). Structuring the IPO: Empirical evidence on the portions of primary and secondary shares. Journal of Corporate Finance, (2), 296. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.corfin.v12y2006i2p296.320
  • Marco Pagano, Fabio Panetta, & Luigi Zingales. (1997). Why Do Companies Go Public? - An Empirical Analysis. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.6714A6FF
  • Woojin Kim, & Michael S. Weisbach. (2005). Motivations for Public Equity Offers: An International Perspective. NBER Working Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.nbr.nberwo.11797