Six Roundtable Discussions of Corporate Finance with Joel Stern

Six Roundtable Discussions of Corporate Finance with Joel Stern

Six Roundtable Discussions of Corporate Finance with Joel Stern

Six Roundtable Discussions of Corporate Finance with Joel Stern

Synopsis

In this book, well-known corporate financial advisor Joel Stern moderates six roundtable discussions among distinguished investment bankers, corporate executives, and financial economists. Discussions focus on topics of strong current interest: mergers and acquisitions, executive compensation, corporate restructuring, capital structure, dividend policy, and investor relations.

Excerpt

Since 1969, when he presented his first two-day corporate finance seminar to the senior management of Pepsico, Joel Stern has been waging a continuous campaign against "accounting-driven" financial management. Under the banner of "earnings per share don't count," he has stimulated (and often provoked) executives from over 800 public corporations by arguing that public firms should be run largely as if they were private. His unvarying message has been that, because capital markets are "efficient," the public corporation best serves its stockholders by maximizing neither reported earnings nor earnings growth, but after-tax "free cash flow." the sophisticated investors that dominate the markets (the "lead steers," in Stern's parlance) are accustomed to distinguishing between accounting illusion and economic reality in setting stock prices; and they can be counted on to reward such "value-maximizing" behavior by management.

To many of the businessmen who have heard him preach the gospel of "market efficiency" over the past fifteen years, Stern must have sounded like a strange prophet crying out in the wilderness. But his advice to corporate executives has had behind it the weight of the greater body of academic research in finance conducted over the last three decades. Beginning principally with the work of Franco Modigliani and Merton Miller back in the late fifties, there has been a major revolution in the theory of corporate finance at our leading business schools. Now firmly grounded in principles of economic logic, and aided by sophisticated statistical methods and powerful computers, the study of finance has made steady progress toward achieving the predictive power of a positive science. Supported by an impressive body of empirical research, finance scholars have been challenging much of the accounting-oriented intuition that continues to pass for the collective wisdom of Wall Street.

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