Corporate Finance and Financial Innovation
Prof. Ian Giddy
Stern School of Business, New York University



This module offers an overview of financial innovation and its role in resolving corporate financing problems from the perspective of the bank’s client: the corporate financial manager. 

Beginning with the premise that financial innovation creates value by overcoming market imperfections, we explore its role in investors’ and corporations toolkit. We then relate the "imperfections" framework tothe financing side: decisions about capital structure - how much debt, relative to equity, is optimal for a particular firm - as well as decisions about what kind of debt, and what kind of equity, is right for the firm. Both investment and financing decisions are tied to financial risk management, including the choice of hedging instruments, so in the context of a roadmap for financing choices we find guidelines for the measurement and management of interest rate and currency risk. 

These principles are fleshed out in the case study that occupies much of the second half-day. Students are broken into groups with different roles in coming up with a financing package for a foreign firm that is engaged in an acquisition in the US. The instructor serves as a "roving consultant" to the groups and helps facilitate the interaction between the corporation, the banks, and the capital markets. Participants learn what influences the choice of financing vehicles, and considers how a bank can offer an array of capital market choices to clients, choices that help solve corporate funding problems, rather than being restricted to commercial loans and related products. 

The case carries over into the third half-day, when each group makes a brief proposal to the "CFO." 

The module concludes with a look at financial innovation in practice--a series of deals involving hybrid securities and structured notes, including the details of a particular deal. Through reverse engineering we consider which innovations have worked, and why.



Day 1    
8:45 am - 10:30 am   Financial Innovation and Corporate Financing Choices
10:30 am - 10:45 am   Break
10:45 am - 12:00 noon   Corporate Financing Choices: What Kind of Debt? 
Case: Financing Ciba
12:00 noon   Lunch
1:00 pm - 2:00 pm   A Framework for Corporate Financing Choices
2:15 pm - 5:00 pm    Group preparation of "Nokia" case

Day 2    
8:30 am - 9:30 am   Preparation for group presentations of "Nokia" case 
9:30 am - 10:45 am   Plenary Session: Group presentations of "Nokia" case 
10:45 am - 11:00 am   Break
11:00 am - 12:00 noon   Feedback and Discussion of Multimarket Financial Packaging
12:00 noon   Lunch
1:00 pm - 2:15 pm   Financial Engineering and the Use of Structured Instruments in Corporate Finance 
Case studies of structured notes: 
The Bavaria Bank MTN 
The Endesa Index-Linked Note
2:15 pm - 2:30 pm   Break
2:30 pm - 5:00 pm   "Digging Under Tombstones" exercise 
Wrap-Up of the Course


Ian H. Giddy, Professor of Finance
New York University • Stern School of Business
44 West 4th Street, New York 10012
Tel 212 998-0332 • Fax 212 995-4233 

Go to Giddy's Web Portal • Contact Ian Giddy at