Module Fundamentals of Finance I

Similar to companies, private households have to make investment and financing decisions, deal with market risks and consider a particularly long planning horizon (from career entry to the end of life). It is very complex to confront these challenges optimally. Under this situation, many households choose to extremely reduce the complexity to make decisions with the support of financial consultants. However, the simplification can lead to systematic deviations from good decisions. This course addresses when the risk of wrong decisions is high and how to avoid or reduce such mistakes.

The course discusses major ways companies employ to finance their operations via capital markets. Equity financing is the focus of this course. Students learn about the mechanism and reasoning behind Initial Public Offerings (IPO). In particular, the course examines conceptual and application perspectives related to initial underpricing of IPOs, the valuation of IPOs, and different allocation procedures of shares. Theoretical discussions are followed by empirical findings to each topic. Then, the rational of seasoned equity offerings (SEO) is analyzed. Topics include the legal framework in different countries, cycles, undepricing, and performance of SEOs. The rational of corporate cross-listing decisions is examined as well. The second part of the course focuses on debt financing. Students are introduced to bond markets. The emphasis is on bond pricing as well as reasons, characteristics and types of corporate bonds.