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Behavioral Finance Economics 437 – Spring 2009 Professor Burton

Behavioral Finance Economics 437 – Spring 2009 Professor Burton. March 2008 Oct-Nov 2008 April 2009. Class on Sunday 2PM – 4PM Picnic, Friday, 4PM Apr 24th. Balance Sheet XYZ Corp As of March 31st, 2009. Assets.

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Behavioral Finance Economics 437 – Spring 2009 Professor Burton

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  1. Behavioral FinanceEconomics 437 – Spring 2009Professor Burton March 2008 Oct-Nov 2008 April 2009 April 16, 2009

  2. Class on Sunday2PM – 4PMPicnic, Friday, 4PM Apr 24th April 16, 2009

  3. Balance SheetXYZ CorpAs of March 31st, 2009 Assets Liabilities Net Worth (= Assets - Liabilites) April 16, 2009

  4. Income StatementXYZ Corporationfor the three month period ending March 31st, 2009 Revenues: xxxxx.xx Expenses: - yyyyy.yy ________ Net Income zzzzzz.zz Taxes - qqq.qq Net Income After Tax nnnnn.nn April 16, 2009

  5. Difference between Bal Sheet and Inc Statements • Balance sheet designed to show net value of the company • Always a specific moment in time • Income Statement • Connects one Bal Sheet to another • Always a flow over a specific time: starts on a certain date and ends on a certain date • Quarterly…..Annual, most common income statements April 16, 2009

  6. Corporate Governance • We speak here of “public companies.” (Private companies are unlikely to have corporate governance, especially when there is a single owner) • Does the Board of Directors act as a single owner of the company would act? • If not, then there is a failure of corporate governance • Principle – agent problem: shareholders are the principles; management is the agent (board of directors are also agents) April 16, 2009

  7. Evidence That There May Be Problems with Corporate Governance • Executive Compensation • Stock Options • Managed Earnings • Mergers and Acquisitions April 16, 2009

  8. Mergers & Acquisitions • If company A buys company B, is that in the best interest of shareholders of company A (or B?) • If company A and B merge, is that in the best interest of shareholders of A and B • Different from a leveraged buyout, which is almost always in the interest of a shareholder April 16, 2009

  9. What is a leveraged buyout (LBO)? • Person (or thing) A bids for a public (could be private) company • Friendly buyout • “Hostile” buyout • Sometimes buyer has no cash (or anything) • How does he buy it (if no cash) • Milken and junk bonds • Modern version: private equity fund April 16, 2009

  10. The End April 16, 2009

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