Corporate Finance in Emerging Markets (CF35033)

General information

Type:	OP	Curs:	1	Period:	S semester
ECTS Credits:	3 ECTS

Teaching Staff:

Group	Teacher	Department	Language
	Jaime Sabal Cárdenas	Economía, Finanzas y Contabilidad	ENG

This course is restricted to MSc in Finance students.

This is not a basic course. Attendants must be proficient in corporate finance and the use of excel. In addition, knowledge of firm valuation is highly desirable.
It is strongly encouraged for those students planning to take this subject to review their previous learnings on corporate financial theory before the course starts. In particular, the Weighted Average Cost of Capital (WACC), the Capital Asset Pricing Model (CAPM) and Corporate Valuation.

Financial Theory in Unstable Environments: What is different in emerging markets? Why less-diversified investors must use different tools? What is different in unstable markets? The treatment of risk
Discount Rates: Brief overview of the CAPM and WACC with a focus on non-public companies. Adjustments for investment analysis in less-efficient markets. Country Risk. The different approaches for discount rate estimation in emerging markets. Parameter estimation
Firm Valuation: Special topics on firm valuation with a focus on emerging markets, less-diversified investors and unstable environments. Risk analysis. Sensitivity analysis and Monte Carlo simulation

Every sound investment decision demands the application of modern financial concepts. However, the theories that are advanced are set in the context of steady economies and do not capture the instabilities characterizing emerging markets and now also prevailing in the developed world, the intrincacies of operating in less-efficient markets with institutional constraints, or pay enough attention to the situation facing less diversified investors such as privately owned companies or closely-held conglomerates.
Despite the importance of this constituency it is surprising that little has been done to adapt financial principles to these special situations. In this course we will make an effort to fill this lacuna.
Key concepts of financial theory will be reviewed with a focus on investment decisions in real assets regarding the aforementioned investment environments. The objective is to juxtapose the assumptions of financial theory against the realities prevailing in unstable and less-efficient markets and to propose more relevant approaches for investment decisions in these situations.
It is important to make clear that this is a financial course. Strategic considerations are not formally covered although they are occasionally commented in class.
Practical and active participation by students is key for the success of the course. At completion, students are expected to have gained a good understanding about real asset investment in less-efficient markets including both developed and developing countries.

1. Introduction to Emerging Markets

2. Valuation in Unstable Markets: Special Considerations

3. Discount Rates

4. The Discount Rate under Uncertainty

5. Parameter Estimation

6. Risk Analysis

Students will count with class slides as well as excel sheets with a number of examples.
Throughout the course a number of quiz exams will be given. Their solution will be discussed in class.
Groups of 4-5 students each will be formed with the purpose of solving one case. No groups with less than 4 or more than 5 students will be accepted. The case will be solved in subsequent stages and each stage graded independently. The case to be worked out will be: "Itaipava Materiais". The focus is on the valuation of an acquisition in an emerging market.
The solution to every stage must include an excel spreadsheet accompanied with explanatory notes on the same sheet. These files must be electronically sent to the professor on the designated dates.

ASSESSMENT BREAKDOWN

The textbook will be: Sabal Jaime, "Financial Decisions in Emerging Markets?, Oxford University Press, 2002, New York, ISBN:0-19-514459-7. The following books are recommended as references:
Authors Title Topics
Copeland, Koller & Murrin "Valuation", 3th. Edition, Wiley, 2000, ISBN 0-471-36190-9

Fernandez P. "Valoracion de Empresas", 3ª Edicion, Gestion 2000, 2005, ISBN 84-8088-980-2

Pereiro L. E. "Valuation of Companies in Emerging Markets", Wiley, 2002, ISBN 0-471-22078-7

Group	Teacher	Department
	Jaime Sabal Cárdenas	Economía, Finanzas y Contabilidad