This assessment is made up of an academic essay of 1500 words supported by 3 blog appendices (700 words each).
Academic Essay – The creation or destruction of shareholder value: financing and investment decisions
(1,500 words excluding Blogs)
The following extract is from the financial press:
“Kick a can down a road for long enough and fatigue ends the game. On Monday, several prominent, distressed US companies finally succumbed to bankruptcy. They included Vice Media and Envision Healthcare, whose backers included some of the world’s best-known investors. The court filings are instructive. Documents not only detailed how these companies kept running out of money. They also showed that bad business models were no bar to raising more money that would itself be lost. Just a year ago, Envision took in more than $1bn in fresh cash. Since 2020, Vice garnered at least $200mn, despite zombie-like characteristics.
Wishful thinking surrounding those deals was predicated upon low interest rates, rising valuations and miracle turnrounds in profitability that never materialised. The chunks of capital will mostly be incinerated. Only senior secured lenders will receive some recoveries, predominantly in risky equity with some cash thrown in. The curse of raising money from investors is that you then need to spend it. In go-go eras, it proves difficult to avoid going with the flow. In the instance of Vice and Envision, new money investments made as the businesses faltered typically had some seniority in the capital structure and received higher interest rates. Such terms are a double-edged sword that can inflict serious damage on a troubled enterprise. Senior lender Fortress Investment Group is set to acquire Vice. The deal values the company at under $300mn. Almost a decade ago, when Vice was seen as a hot, disruptive magazine publisher, it raised equity at a valuation close to $5bn. Envision, which comprises physician practices and surgical centres, will not take such a sharp haircut. It is perhaps worth half the value of its $10bn 2018 buyout.
Investors can learn from this. Cash calls too often forestall hard operational choices, when the latter could preserve more value in the long run. Easy capital is a powerful drug. Its side effects include myopia.”
(FT.com ‘US bankruptcies: easy capital is a drug that induces myopia’, May 16, 2023)
Requirement
You are, in an academic essay format (70% of marks), required to answer the following question:
The extract above suggests that various bankruptcies and firm failures provide evidence that frequent cash demands can often delay difficult investment and financing decisions, even though those decisions could ultimately preserve more long-term value.
You are required to critically discuss to what extent the capital structure and investment decisions of a firm impact the creation or destruction of shareholder value. Your answer should display a thorough and extensive engagement with appropriate academic literature and come to a conclusion regarding the ability of managers to effectively make financing and investments decisions that generate sustainable shareholder value.
Guidance Notes:
Your answer should display a good understanding of shareholder value creation or destruction in relation to corporate finance and the role that both financing and investment decisions play. You must demonstrate a good awareness of the appropriate academic literature.
You will be expected to include literature on at least two relevant topics such as cost of capital, capital structure theories and decisions, valuations and the success or failure of M&A activities.
Your answer may also consider alternative sources of finance such as green bonds.
You should use contemporary real-world examples to illustrate how capital structure and investment decisions can impact shareholder value creation or destruction.
You should make reference to current examples from strong and reputable business news sources such as the Financial Times and Bloomberg.
Your conclusion should draw upon the current business and economic environment to make your conclusions relevant to modern businesses.
Your answer should specifically be written in an academic essay format and not in the format of a business report. Essays specifically should not include headings, section headings, etc. Your essay should concentrate particularly ensure that there is considerable flow and cohesion between the paragraphs. It is advised that you make good use of the writing support materials on the Blackboard site. The University library also offers materials on writing academic essays which can be accessed using the following link:
This essay is to be supported by three blog appendices. Students should write blogs to cover topics related to each of three out of the four syllabus areas covered in the module (creating value, core concepts of corporate finance, financial investment, financial ethics). Students will receive a maximum of 10 marks for each Blog post submitted (30 marks total). Blog posts do not have to be about the cost-of-living crisis or the pandemic and can be on any contemporary issue. Students are encouraged to complete blogs throughout the semester although these are submitted during the assessment period.
Each of the three Blog posts should reflect on a real-world contemporary issue (please ensure your blogs are current). Students should demonstrate their ability to apply theory to real world cases and reflect on what they are being taught in seminars, lectures and through the directed reading relates to the real world which they are discussing. Good Blog posts would be in-depth, considered, and displaying a mature ability to analyse, disseminate and discuss. Poor Blog posts are descriptive
It is advised that students use a free Blog service like Google’s Blogger. Students are not restricted to Blogger and may use any blogging service.
4.Students may design their Blog how they wish, however it is requested that they both refrain from links to unsuitable websites and that they remember the university’s internet usage policy when posting and designing their blogs.
5.Be creative and don’t view this as a chore or requirement. Try and take time rather than rushing this. The Blog is marked on depth of reflection and consideration. Remember that deep and considered blog posts will allow you to evidence more and maximise your “critically assess” and “critically analyse”
6.Bring in contemporary issues or things happening that week in the news. Use the Blog to display what you’ve been reading about. Perhaps before blogging have a search through the Financial Times for that week or have a read of what other top business journalists are talking. Try and make your blog posts as contemporary and timely as possible to maximise marks. Don’t Blog about something that happened last year, Blog about things happening now, and things you may want to talk about in interviews with future employers
