A View From INSEAD
Professor Theo Vermaelen on Advanced International Corporate Finance
Programme Director of the Advanced International Corporate Finance programme
Professor Theo Vermaelen is one of INSEAD’s world-famous finance faculty members. As well as winning prizes for his research, he has advised leading companies on corporate finance and financial management. Here he answers questions on his latest venture: the new Advanced International Corporate Finance programme for executives.
What is the rationale behind the Advanced International Corporate Finance programme?
We want to provide an overview of the main corporate financial decisions that finance executives face in a global setting: valuation of projects and companies, financing decisions, payout decisions, risk assessment and risk management. The emphasis is on “global” as most of INSEAD’s participants come from all over the world. Regulation, taxes, market efficiency and governance are often country specific. In other words, it's essential to understand the environment in which you’re making your decisions. We want the programme to be an opportunity for executives from around the world to share their views and experiences. We have also a very international faculty that does research on international markets, so we want to use the opportunity to share our findings with the participants.
How did you arrive at the programme’s intensive format and structure?
The programme itself is five days, which is designed to fit in with busy executives’ and directors’ schedules. In turbulent times like today, no one can afford to be out of the office for very long. So it’s technical and condensed, with a certain amount of preparation before you arrive on campus. We have included a day on valuation and capital structure, for those who need to refresh their knowledge on DCF, the WACC and determinants of capital structure. After all, you can’t create shareholder value unless you know how to measure it. So a solid basic understanding of valuation principles is a prerequisite for understanding what goes on in the rest of the programme.
Isn’t it very hard work to do so much in such a short time?
Ah, but finance people are smart, so that’s no problem! We also send most of the teaching material in advance so that participants have an opportunity to prepare themselves for the classroom experience. In fact, to give some additional context, the programme is part of a general move at INSEAD to create a series of short finance and strategy courses that complement each other. It’s very customer focused.
So who are the customers that you’re most focused on?
I think the programme is essential for anyone who is serious about finance. But if I have to single out particular groups, it’s ideal for CFOs and senior members of their teams, as well as bankers and other advisory professionals. Also board members can gain a lot from the programme. If you’re going to approve acquisitions, equity issues or buybacks, you have a fiduciary responsibility to understand these decisions. You can’t simply hide behind the opinions of advisors, who may pursue their own interest, not the interest of their client. For example, investment banks are paid success fees in acquisitions, which may encourage them to overvalue targets. The only way to protect yourself is to understand valuation.
What topics does the programme cover?
The first day is all about advanced project finance and public-private partnerships, which are increasingly important and very topical. Moreover they provide a setting where traditional DCF valuation with the WACC cannot be applied. The second day covers the international dimension of risk: how to assess political and exchange risk, how to incorporate into valuation, and how to manage it? The third day explores the main issues involved in raising equity capital and going public. For example, should I do rights issues or cash offers? If I do rights issues should I have the rights traded or not? Should I be concerned about underpricing an IPO or overpricing it, as happened in the recent Facebook IPO? And the final day is all about tactical issues in finance: should I see undervaluation as on opportunity to buy back undervalued stock, or rather as a threat of being taken over below fair value? How to you make hostile bids in continental Europe where maximizing stakeholder value, rather than shareholder value, is the rule?
And what doesn’t it cover?
We try to make the programme accessible to a large group of people and finance and won’t go into financial engineering such as complex derivative products.
Talking of business schools, how does this programme differ from finance courses at other schools?
Saying that this programme is the best finance programme in the world would sound excessively arrogant and therefore not very credible. People may find it surprising, but I have no problem with recommending people who are passionate about finance to take as many finance courses as possible, including in other business schools, in order to get a wider perspective. But if you’re going to take only one corporate finance programme in your life, it has to be this one, as it has the broadest, most international perspective of all. The international focus – using case studies and research from all over the world developed here at INSEAD – is absolutely unique. Also the condensed format guarantees a high return on investment, something finance people should appreciate.
Why does it matter so much that a corporate finance programme is international?
It’s simply more powerful. I’m doing research with my Italian colleague Massimo Massa on equity rights issues in 50 countries and with my Swiss colleague Urs Peyer into share buybacks around the world. The conclusions are much more interesting than if we were purely US professors working on US markets and data – especially for participants from a foreign country. The typical question you get from participants when you show them the US evidence is: “But what happens when I would do this in my country? “I think a school such as INSEAD which claims to be the “Business school for the world” should be able to answer such a question. We can make interesting comparisons in class and discuss the merits of different regulatory frameworks.
Does that explain INSEAD’s growing reputation as a finance school?
I think it’s part of the story. INSEAD used to advertise itself as a general management school. This gives the impression that we are a school where students learn superficial knowledge about technical topics such as finance. During the last 20 years we have been changing this by hiring more finance professors and introducing more finance electives in the MBA programme. As a result, we are now recognized by the CFA institute as a partner. You can only become a partner if you can demonstrate that your MBA program offers enough finance electives to become a real finance specialist. As a result of being more serious about finance, we been able to attract some of the world’s best finance professors. So we are now launching our Master in Finance programme to complement our Executive Education. It’s very exciting to be part of this growth – and I think participants will get the same sense of dynamism and satisfaction.
Click here for more information about the Advanced International Corporate Finance programme – and to download your application form.