Finance 361 Stanford - Financial Business

Finance 361, “Advanced Corporate Finance,” at Stanford University is a highly regarded and rigorous course, typically taken by MBA students and advanced undergraduates with a strong quantitative background. It delves deeper into complex topics within corporate finance than introductory courses, equipping students with the analytical tools and frameworks necessary for advanced financial decision-making.

The course typically covers a wide array of topics, often building upon the foundational concepts learned in introductory finance. Key areas often include:

Valuation: This goes beyond basic discounted cash flow analysis. Students learn about real options valuation, considering the flexibility inherent in many corporate decisions, and explore advanced techniques for valuing complex securities and companies in various industries. Emphasis is placed on understanding the assumptions underlying valuation models and their limitations.
Capital Structure: A detailed examination of the trade-offs involved in choosing a firm’s capital structure, balancing the benefits of debt (e.g., tax shields) with the costs (e.g., financial distress). Students analyze various theories of capital structure, such as the Modigliani-Miller theorem (and its extensions), trade-off theory, and pecking order theory. They learn how to optimize capital structure to maximize firm value.
Dividend Policy: Exploration of the factors influencing a firm’s dividend policy and its impact on shareholder value. Discussions cover dividend irrelevance theory, clientele effects, signaling effects, and agency costs related to dividend payments. Students examine different dividend payout methods, including regular dividends, special dividends, and stock repurchases.
Mergers and Acquisitions (M&A): A comprehensive look at the strategic motivations behind M&A transactions, the valuation of target companies, deal structuring, and post-merger integration. Students analyze the various types of mergers (horizontal, vertical, conglomerate) and the different acquisition financing methods. Legal and regulatory aspects of M&A are also typically addressed.
Risk Management: Techniques for identifying, measuring, and managing financial risks, including interest rate risk, currency risk, and commodity price risk. Students learn about various hedging strategies using derivatives and other financial instruments. The importance of enterprise risk management (ERM) is often emphasized.
Corporate Governance: Analysis of the mechanisms used to align the interests of managers with those of shareholders. Topics include board structure, executive compensation, shareholder activism, and the role of institutional investors. Ethical considerations in corporate finance decision-making are also often discussed.

The course emphasizes a quantitative approach, requiring students to apply sophisticated financial models and statistical techniques to real-world case studies. Students typically participate in class discussions, work on challenging problem sets, and complete group projects that involve analyzing complex financial situations and developing recommendations. The workload is substantial, demanding a significant time commitment.

Finance 361 is taught by leading faculty in the field of finance. Its reputation for academic rigor and practical relevance makes it highly valuable for students pursuing careers in investment banking, private equity, hedge funds, corporate finance, and other finance-related fields. Completion of this course significantly enhances a student’s understanding of advanced corporate finance principles and prepares them for the challenges of financial decision-making in complex and dynamic environments.