Bard MBA

Finance for Sustainable Business

Spring 2013
3 Credits

Objectives:
The key learning objectives for the course are:
  • Identifying and critiquing normative theories of management’s role in the firm
  • Conducting cash-flow and option-based valuation of real assets focusing on the long-term impact for all stakeholders
  • Understanding how capital structure, payout, and compensation policies, as well as the market for corporate control affect firm value and managerial actions
  • Recognizing the impact of agency conflicts and information asymmetries on firm performance and devise effective controls
Student Outcomes:
The class is designed help students apply financial theory and principles to the analysis of important business problems. Students should leave the course understanding in which situations the actions of stakeholder-focused managers and shareholder-focused managers will be the same and in which situations the actions could be different.

Texts
  • Nelson, Julie A., Economics for Humans, University of Chicago Press, 2007.
  • Allen, Franklin, Richard A Brealey, and Stewart C. Myers, Principles of Corporate Finance, McGraw Hill, 9th edition, 2007.
  • Daily, Gretchen and Katherine Ellison, The New Economy of Nature, Island Press, 2002.
  • Additional readings will regularly be assigned from a number of other books, academic and journal publications such as:
    • Luehrman, Timothy A., “Using APV: A better tool for valuing operations”. HBR, 1997.
    • Mendonca and Oppenheim “Investing in sustainability: An interview with Al Gore and David Blood” McKinsey Quarterly, May, 2007 (pp11).
    • Jensen, Michael, “Value Maximization, Stakeholder Theory, and the Corporate Objective Function.” Business Ethics Quarterly, April, 2002.
    • Kareiva, Peter, et al. Natural Capital: Theory and Practice of Mapping Ecosystem Services. Oxford, 2011.
    • Winkler, Adam, “Corporate laws or the law of business?: Stakeholders and corporate governance at the end of history.”
    • Wruck, Karen Hopper “Financial distress, reorganization, and organizational efficiency.” Journal of Financial Economics, October, 1990.
    • Hall (2003), “Six challenges in designing equity-based pay.” Journal of Applied Corporate Finance, Spring, 2003.
    • Jensen (2003) “Paying people to lie: the truth about the budgeting process.” European Financial Management, September, 2003.
Grading
The course will be a combination of lectures, case studies, group discussions, and student projects. Active participation in class discussions will be essential. Grading will be determined by participation in in-class exercises, case analysis, group presentations, completion of homework, and exams.

Course Outline:
The Bard MBA curriculum is modular, with each module topic corresponding to a residency. The outline below provides the Finance for Sustainable Business set of topics for each of the semester’s modules, with each set of topics corresponding to three to four weeks of conventional instruction..

Module

Topics

Systems Thinking

Fundaments of financial management. This section will review discounting, interest, time value of money, cash flow asset valuation techniques, etc.

Goal of the corporation. We will emphasize the different objectives of the profit maximization and shareholder maximization models. We will look at trade-offs, long and short-term views of a firm, perfect market assumptions, ethical considerations and more.

Firm Costs and Finance

Capital structure and payout policy. We focus on the impact that capital structure can have on firm value and managers’ ability to pursue value-maximizing policies. We will also provide a basic understanding of the irrelevance of dividends under perfect market assumptions and how the relaxation of those assumptions leads to potential importance of payout policy. 

System Dynamics

 

Valuation. Introduction to the underlying assumptions of traditional NPV analysis and the insights offered by APV analysis. We will discuss estimating cost of capital, focus on simple valuation exercises, and the challenges of internalizing externalities. We will also explore project valuation and finance, with special focus on renewable energy and energy efficiency.

Global Structures and Regulation

Markets for ecosystem services. We will begin by identifying ecosystem service providers such as forests, climate, wetlands, etc. and characterize their roles and relationships. We will look at emerging markets in these areas, and the role of policy. More applications of regression analysis here.

Distance, Transparency and Ethics

Agency theory and governance. Here we focus on compensation policy, internal and external monitoring, the difficulty of monitoring managers with the single objective function of value maximization, M&A, and the rationale for acquisitions and diversification.