Syllabus FIN 645 - Syllabus for 0909F I N_6459041 Faculty...

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Syllabus for 0909FIN_6459041 Faculty Contact Information FIN 645 Section 9041 Instructor Name: Bala G. Arshanapalli Email: [email protected] Phone:(219)980-6919 Course Description Prerequisite: FIN 630. A study of the key psychological obstacles to value-maximizing behavior and steps that managers can take to mitigate their effects, using the traditional tools of corporate finance. Focus is on understanding the underlying factors and processes that result in nonoptimal decision making by financial managers. Topics include perceptions about risk and reward and financial decision making in the areas of valuation, capital budgeting, capital structure, dividend policy, agency conflicts, corporate governance, and mergers and acquisitions. Readings and exercises explore the psychological basis of nonoptimal decision making from the perspective of the individual investor. Course Goals/Objectives At the end of this course, students should be able to: 1. Explain why reliance on heuristics and susceptibility to framing effects make managers vulnerable to making faulty decisions that reduce firm value 2. Apply the effects of potential biases with the use of valuation heuristics to real world scenarios provided by the instructor 3. Distinguish between the remedies appropriate to agency conflicts and the remedies appropriate to behavioral biases in capital budgeting and dividend policy decision making
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4. Analyze how representativeness leads managers, investors. and market strategists to form biased judgments about the market risk premium 5. Compute the adjusted present value to assess how the managers of a financially constrained firm with undervalued equity should choose between repurchasing shares and undertaking new profitable projects 6. Analyze how, because of aversion to a sure loss and overconfidence, stock option-based compensation can exacerbate agency conflicts 7. Apply real option techniques as a means to mitigate managers' tendencies to "throw good money after bad" Course Materials Click here to view the required and recommended materials to be purchased and to access ordering information. Graduate School's Read Me First Document Additional Readings/Materials Recommended Texts The Wall Street Journal (available in the UMUC library web databases) Required Articles 1. Dufree, D. (March 1, 2005). A question of value. CFO Magazine . See http://www.cfo.com/article.cfm/3709802/c_3710920?f=magazine_alsoinside 2. Finucane, M., Alhakami, A., Slovic, P., Johnson, S. (2000). The affect heuristic in judgments of risks and benefits. Journal of Behavioral Decision Making , 13(1), 1-17. See the Library link in the classroom; then web databases/ABI/INFORM.
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3. Gompers, P., Ishii, J., Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics , 118(1), 107-155. See Library link in the classroom then web databases/ABI/INFORM. Then use journal finder or go to Business Source Premier.
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