The Economics of Corporate Finance

Second year module

Lecturer: Colin Rowat

The module studies firms’ investment and financing decisions in the light of incentives, information and institutions. It focuses particularly on capital structure decisions: Modigliani and Miller’s irrelevance result is first presented; the assumptions underlying it (e.g. on taxes, agency costs, and bankruptcy) are then systematically examined to provide explanations of observed capital structures. In doing so, the module seeks to present clear statements of relevant theory, and apply them to contemporary issues in corporate finance.

Learning outcomes

By the end of the module students should be able to:

  • demonstrate knowledge of the stylised facts surrounding firms’ financial decisions
  • demonstrate a thorough understanding of leading explanations for these decisions
  • apply their understanding to the operations of an actual firm


  • two hour written examination (80%)
  • one 1500-word assignment (20%)