Corporate Finance Theory (F)

Course content

Corporate Finance Theory builds on the investigation into firm capital structure from the third-year course Corporate Finance and Incentives. We take for granted that course participants have already received a full introduction to the principles of corporate finance. We now go deeper into the particular details of some of these arguments. In order to do so, we go beyond the textbook and base the course on classic and new articles from academic finance journals.


Some of the central issues in Finance relate to the financing decisions of firms, in particular the relative use of debt and equity financing. Key aspects of this capital-structure decision include the tax advantages of debt, costly bankruptcy, and signaling to the market. We also consider the market for corporate control, with leveraged buyouts as well as mergers and acquisitions.


When looking at financing decisions, we will pay particular attention to how conflicts of interest between managers, shareholders, and creditors can affect firm behavior.  Amongst other issues, we will consider how firms may take on excessive debt so as to pass bankruptcy costs on to certain creditors; opt for leveraged buyouts to take advantage of sponsor reputation; carry out liquidity mergers to avoid credit rationing; and use equity financing to mitigate information asymmetries with investors, or to reduce agency conflicts within the firm.


MSc programme in Economics – elective course

The course is part of the MSc programme in Economics, Financial line,  symbolized by ‘F’.


The PhD Programme in Economics at the Department of Economics:

  • The course is an elective course with research module. In order to register for the research module and to be able to write the research assignment, the PhD students must contact the study administration AND the lecturer.
Learning outcome

After completing the course the student is expected to be able to:



  • Identify and summarize key theoretical concepts and results from academic articles (intuition).
  • Identify and evaluate key modeling assumptions in an advanced, mathematically-specified theoretical framework (formal modeling).
  • Account for the economic mechanism underlying given theoretical results and discuss their interpretation (intuition).



  • Assess whether various modeling assumptions are realistic in particular real-life settings (application to case).
  • Derive and analyze formal results within an advanced, mathematically-specified theoretical framework (formal modeling).
  • Argue whether theoretical insights from various articles can shed light on given real-life cases (application to case).



  • Compare and contrast theoretical concepts from different articles, and explain the key similarities and differences (intuition).
  • Argue to what extent the formal theoretical results derived in various articles relate to the articles’ more informal interpretation (formal modeling).
  • Identify new, relevant, real-life cases, and evaluate whether theoretical insights from various articles can shed light on these cases (application to cases).


The tools and knowledge obtained in this course are of immediate relevance for graduates seeking employment in the business and financial industries. 

The teaching activities will consist of lectures where students are expected to actively participate. This will include discussing questions in groups, submitting short answers and voting on multiple choice questions using the Socrative online system, and at times coming to the board.


To read approximately eight recently-published academic articles and working papers in the field of corporate finance.

After an introductory lecture, we will start with approximately two lectures on selected topics from the textbook “The Theory of Corporate Finance” by Jean Tirole.

We will then devote approximately one week (two lectures) to each of the eight articles, supplemented by in-class discussions of related real-world issues in corporate finance.

The preliminary reading list is as follows (subject to change). Links to the articles will be posted on the Absalon course homepage.



  • Tirole, Jean. The theory of corporate finance. Princeton University Press, 2010.



  • Admati, DeMarzo, Hellwig, and Pfleiderer (2018). “The leverage ratchet effect.” The Journal of Finance, 73(1), 145-198.
  • Edmans and Mann (2019). “Financing Through Asset Sales.” Management Science, 65(7), 3043-3060.
  • Malenko and Malenko (2015). "A theory of LBO activity based on repeated debt-equity conflicts." Journal of Financial Economics, 117(3), 607-627
  • Banal-Estañol, Ottaviani, and Winton (2013). "The Flip Side of Financial Synergies: Coinsurance Versus Risk Contamination." Review of Financial Studies
  • Bayar and Chemmanur (2011), “IPOs versus Acquisitions and the Valuation Premium Puzzle: A Theory of Exit Choice by Entrepreneurs and Venture Capitalists,” Journal of Financial and Quantitative Analysis 46(6), 1755–1793.
  • DeMarzo, Livdan and Tchistyi (2014), “Risking Other People’s Money: Gambling, Limited Liability, and Optimal Incentives,” Stanford Business School Working Paper No.3149.
  • Fahn, Merlo, and Wamser (2019), “The Commitment Role of Equity Financing,” Journal of the European Economic Association 17(4), 1232-1260
  • Levit (2019), “Soft shareholder activism,” The Review of Financial Studies, 32(7), 2775-2808.

Students will benefit from having followed the course "Corporate Finance and Incentives" or an equivalent introduction to Finance. Students who have not done so can benefit from following “Financial Decision Making” concurrently with “Corporate Finance Theory”.

Students should have a good understanding of the topics covered in Part 5 (Capital Structure) of the textbook “Corporate Finance” by Jonathan Berk and Peter DeMarzo, or in another book of a similar level.

2 hours lectures 1 to 2 times a week from week 36 to 50 (except week 42).

The overall schema for the Master can be seen at KUnet:
MSc in Economics => "Courses and teaching" => "Planning and overview" => "Your timetable"

Timetable and venue:
To see the time and location of lectures please press the link under "Timetable"/​"Se skema" at the right side of this page (E means Autumn).

You can find the similar information partly in English at
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-E22; [Name of course]”
-Select Report Type: “List – Weekdays”
-Select Period: “Efterår/Autumn”
Press: “ View Timetable”

Please be aware:
- The schedule of the lectures can change without the participants´ acceptance. If this occur, you can see the new schedule in your personal timetable at KUnet, in the app myUCPH and through the links in the right side of this course description and at the link above.
- It is the students´s own responsibility continuously throughout the study to stay informed about their study, their teaching, their schedule, their exams etc. through the curriculum of the study programme, the study pages at KUnet, student messages, the course description, the Digital Exam portal, Absalon, the personal schema at KUnet and myUCPH app etc.



The lecturer will provide oral and written collective feedback, at various moments after students actively participate in course activities e.g. voting on multiple choice questions and submitting short answers online.

Upon request, the lecturer will also provide students with individual oral feedback on their mandatory assignment.


Office hours: The lecturer offers office hours. The lecturer infoms the student when and where.

7,5 ECTS
Type of assessment
Written assignment
Type of assessment details
Individual take-home exam. When the exam is visible, you have two weeks to solve the assignment.

For your further information, it takes approximately up to 15 hours to solve the assignment.
The exam assignment is in English and must be answered in English.

The students are allowed to communicate about the given problem-set but must work on, write and upload the assignment answer individually. The plagiarism rules must be complied.

Regarding the exam period and deadline:
Due to other exams and holidays in the same period of the exam, the student have a period of two weeks to solve the assignment. The student decides when to solve and upload the exam assignment within the period. See "Exam period" for period and deadline.
Exam registration requirements

To qualify for the exam the student must no later than the given deadline during the course:

  • hand in and have approved one mandatory assignment.

All aids allowed at the written exams.


Use of AI tools is permitted. You must explain how you have used the tools. When text is solely or mainly generated by an AI tool, the tool used must be quoted as a source.


For further information about allowed aids for the re-examination, please go to the section "Re-exam".



Grading of the exam:

Exchange students must be aware, that the assessors and the University are not allowed in any way to reward a student with a grade of numerically or alphabetically value. The course and the exam will only be rewarded with a grade of

Marking scale
passed/not passed
Censorship form
No external censorship
for the written exam.
An oral re-examination may be with external assessment.
Exam period

Exam information:

More information is available in Digital Exam from the middle of the semester. In special cases decided by the Department, the exam can changed to another day and/or time than announced. 

More information about examination, rules, aids etc. is available at Master students (UK) and Master students (DK).


The oral reexam takes place witn in the period:

The reexam is a 30 min. oral exam with 30 min. preparation time.

All written aids allowed during the preparation time and the examination.


You must hand in and have approved 1 mandatory assignment for qualifying to the reexam.


Reexam info:

More information in Digital Exam in February. In special cases decided by the Department, the re-sit can change to another day and/or time than announced.

More info: Master(UK) and Master (DK).

Criteria for exam assessment

Students are assessed on the extent to which they master the learning outcome for the course.


In order to obtain the grade “Pass”, the student must in a satisfactory way be able to demonstrate a minimal acceptable level of  the knowledge, skills and competencies listed in the learning outcomes, including the three relevant areas: intuition, formal mathematical modeling, and application to cases.

Single subject courses (day)

  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 149
  • Exam
  • 15
  • English
  • 206


Course number
7,5 ECTS
Programme level
Full Degree Master

1 semester

- Go to 'Signup' for information about registration and enrollment.

Information about admission and tuition fee:  Master and Exchange Programme, credit students and guest students (Open University)

and venue:
- For teaching: Go to 'Remarks'.
- For exam and re-sits: Go to 'Exam'.
Department of Economics, Study Council
Contracting department
  • Department of Economics
Contracting faculty
  • Faculty of Social Sciences
Course Coordinator
  • Nick Vikander   (13-7b7670783b8376786e7b71727f4d72707c7b3b78823b7178)

See 'Course Coordinators'

Please read "Remarks" regarding the schedule of the teaching.

Saved on the 21-09-2023

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