Case studies in finance : managing for corporate value creation, 7th ed.

Abstract

The half-decade from 2008 to 2013 forced a series of “teachable moments” into the consciousness of leaders in both business and government. More such moments may be in the offing, given the unresolved issues stemming from the global financial crisis. What lessons shall we draw from these moments? And how shall we teach the lessons so that the next generation of leaders can implement wiser policies? One theme implicit in most critiques and policy recommendations of this period entails the consequences of financial illiteracy. At few other times in financial history have we seen so strong an affirmation of Derek Bok’s famous argument, “If you think education is expensive, try ignorance.” The actions and behavior of consumers, investors, financial intermediaries, and regulators suggest ignorance (naïve or otherwise) of such basic financial concepts as time value of money, risk-adjusted returns, cost of capital, capital adequacy, solvency, optionality, capital market efficiency, and so on. If ignorance is bliss, teachers of finance face a delirious world. Now more than ever, the case method of teaching corporate finance is critical to meeting the diverse educational challenges of our day. The cases presented in this volume address the richness of the problems that practitioners face and help to develop the student in three critical areas: • Knowledge. The conceptual and computational building blocks of finance are the necessary foundation for professional competence. The cases in this volume afford solid practice with the breadth and depth of this foundational knowledge. And they link the practical application of tools and concepts to a contextual setting for analysis. Such real-world linkage is an important advantage of case studies over textbook problem sets. • Skills. Case studies demand decisions and recommendations. Too many analysts are content to calculate or estimate without helping a decision-maker fully understand the implications of the analysis. By placing the student in the position of the decision-maker, the case study promotes confidence and competence in making decisions. Furthermore, class discussions of cases promote skills in communication, selling and defending ideas, giving feedback, negotiating, and getting results through teamwork—these are social skills that are best learned in face-to-face engagement. • Attributes of character. Popular outrage over the crisis focused on shady ethics. The duty of agents, diligence in the execution of professional responsibilities, breaches of trust, the temptations of selfdealing, and outright fraud intrude into retrospective assessments of what might otherwise be dry and technical analyses of the last decade. It is no longer possible or desirable to teach finance as a purely technical subject devoid of ethical considerations. Ultimately, teaching is a moral act: by choosing worthy problems, modeling behavior, and challenging the thinking of students, the teacher strengthens students in ways that are vitally important for the future of society. The case method builds attributes of character such as work ethic and persistence; empathy for classmates and decision-makers; social awareness of the consequences of decisions and the challenging context for decision-makers; and accountability for one’s work. When students are challenged orally to explain their work, the ensuing discussion reveals the moral dilemmas that confront the decision maker. At the core of transformational teaching with cases is growth in integrity. As Aristotle said, “Character is destiny,” a truism readily apparent in the ruinous aftermath of the global financial crisis. As with the sixth edition of this book, I must commend my colleagues, Kenneth Eades and Michael Schill, who brought this seventh edition to the public. They are accomplished scholars in Finance and masterful teachers—above all, they are devoted to the quality of the learning experience for students. Their efforts in preparing this volume will enrich the learning for countless students and help teachers world-wide to rise to the various challenges of the post-crisis world.