Suggested Readings Chapter 1 -...

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Suggested Readings

Chapter 1A current survey of trends affecting chartered banks and other Canadian financial institutions is:Saunders, A., M. Cornett and P. McGraw, Financial Institutions Management, 4th Canadian Edition, Whitby, Ontario: McGraw-

Hill Ryerson, 2010.Another useful source is:

Freshfields Bruckhaus Deringer and the UNEP Finance Initiative, October 2005, available at http://www.unepfi.org/fineadmin/documents/freshfields_legal_resp_20051123.pdf

Chapter 2There are many excellent textbooks on accounting and financial statements. One that we have found helpful is: Garrison, R. H., E. Noreen, P. Brewer, G. R. Chesley, and R. F. Carroll. Managerial Accounting, 8th Canadian ed. Whitby,

Ontario: McGraw-Hill Ryerson, 2009.

Chapter 3 There are many excellent textbooks on financial statement analysis. Two that we have found helpful are: Garrison, R. H., E. Noreen, P. Brewer, G. R. Chesley, and R. F. Carroll. Managerial Accounting, 7th Canadian ed. Whitby,

Ontario: McGraw-Hill Ryerson, 2006, chap. 17. White, G. I., A. C. Sondhi, and D. Fried. The Analysis and Use of Financial Statements, 3d ed. Wiley, 2003.

Chapter 4A useful textbook on financial planning is: Higgins, R. C. Analysis for Financial Management. 8th ed. McGraw-Hill Irwin, 2007.Sustainable growth is discussed in: Higgins, R. C. “Sustainable Growth under Inflation.” Financial Management 10, Autumn 1981.For a critical discussion of sustainable growth, see: Rappaport, A. Creating Shareholder Value: The New Standard for Business Performance. New York: Free Press, 1986.

Chapter 5 1. The following weblink shows the power of compound interest. The link assumes an investment of $1 made by Jesus in the year

32 B.C. Fill in the rest of the table, assuming a low interest rate (e.g., 2 percent per year). You will be amazed to find what a single dollar of investment would have grown to by 2010 A.D. www.funk.co.nz/java/ jesus-investment.html

2. Go to www.dinkytown.net and follow the Net Worth Calculator link. You want to be a millionaire. You can earn 7 percent per year. Using your current age, if you have $30,000 to invest, what will your net worth be in 10 years assuming you make no other deposits (ignore inflation)?

Chapter 6 One of the best places to learn more about the mathematics of present value is the owner’s manual that comes with a financial calculator. One of the best comes with the Hewlett-Packard 12C calculator: Hewlett-Packard HP-12C. Owner’s Handbook and Problem Solving Guide, latest edition. Hewlett-Packard HP-12C. Solutions Handbook, latest edition. Other useful references are: Texas Instruments. Business Analyst/Guidebook, latest edition. Sharp. Business/Financial Calculator EL-731SL. Instruction Guide and Application Manual.

Chapter 7The best place to look for additional information about valuing stocks and bonds is in an investments textbook. Good ones are

Bodie, Z., A. Kane, A. Marcus, S. Perrakis, and P. Ryan. Investments, 6th Canadian ed. Whitby, Ontario: McGraw-Hill Ryerson,

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2008. Sharpe, W. F., G. J. Alexander, J. V. Bailey, D. J. Fowler, and D. Domian. Investments, 3rd Canadian ed. Scarborough, Ont.: Prentice-Hall Canada, 1999.

For more on duration applications see Appendix 7A and the following articles: Fooladi, I., and G. S. Roberts. “How Effective Are Duration-Based Bond Strategies in Canada?” Canadian Investment Review,

Spring 1989, pp. 57–61. Bierwag, G. O., I. J. Fooladi, and G. S. Roberts. “Risk Management with Duration: Potential and Limitations.” Canada Journal of

Administrative Sciences, 2000.

Chapter 8Two current Canadian investment texts expanding our discussion of stock valuation are:

Bodie, Z., A. Kane, A. Marcus, S. Perrakis, and P. Ryan. Investments, 5th Canadian ed. Whitby, Ontario: McGraw-Hill Ryerson, 2005. Sharpe, W.F., G.J. Alexander, J.V. Bailey, D.J. Fowler, and D. Domian. Investments, 3rd Canadian ed. Scarborough, Ontario: Prentice-Hall Canada, 1999.

Further insight into using the dividend growth model in Canada is in: Ackert, L. and J. Schnabel. “The Dividend Discount Model: A Victim of the Tumultuous Eighties?” Canadian Investment Review 6, no. 3, Fall 1993, pp. 7–10.

Chapter 9For a discussion of the capital budgeting techniques used by large firms in Canada, see: Jog, V.M. and A.K. Srivastava. “Corporate Financial Decision Making in Canada.” Canadian Journal of Administrative

Sciences 11, June 1994, pp. 156–76. Graham, J. R., and C.R. Harvey. “The Theory and Practice of Corporate Finance: Evidence From the Field,” Journal of

Financial Economics 60 (May 2001).

Chapter 10For more on the capital budgeting decision, see: Garrison, R., E. Noreen, G.R. Chesley, and R. F. Carroll. Managerial Accounting, 8th Canadian ed. Whitby, Ontario:

McGraw-Hill Ryerson, 2009. Graham, John R. and Campbell R. Harvey. “The Theory and Practice of Corporate Finance: Evidence From the Field.”

Journal of Financial Economics 60, May 2001, pp. 187–243.

Chapter 11For a more in-depth (and highly readable) discussion of break-even analysis and operating leverage, see:

Viscione, J. A. Financial Analysis: Tools and Concepts. New York: National Association of Credit Management, 1984, chap. 4.A discussion of break-even applications in Canada is in:

Kilpatrick, I. “Customized Control.” CA Magazine, Toronto, October 1995.The following articles are classics on the subject of risk analysis in investment decisions:

Hertz, D. B. “Risk Analysis in Capital Investment.” Harvard Business Review 42 (January–February 1964).________. “Investment Policies that Pay Off.” Harvard Business Review 46 (January–February 1968).

A trade book on competitive strategy and advantage is:Porter, M. E. Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press, 1985.

Chapter 12Two good reviews of research on efficient markets in Canada are: Bodie, Z., A. Kane, A. Marcus, S. Perrakis, and P. J. Ryan. Investments. 8th Canadian ed. Whitby, Ontario: McGraw-Hill

Ryerson, 2009. Sharpe, W. F., G. J. Alexander, J. V. Bailey, D. J. Fowler, and D. Domian. Investments. 3rd Canadian ed. Scarborough, Ontario:

Prentice-Hall, 2000.

A useful source of highly readable current Canadian capital markets research is the Canadian Investment Review.

A readable article on behavioural finance and bubbles is: Shiller, Robert J. “From Efficient Markets Theory to Behavioral Finance,” Journal of Economic Perspectives, American Economic

Association, vol. 17(1), pages 83–104, Winter 2003.

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A readable article on forecasting returns is: Eric, Jacquier. “Optimal Estimation of the Risk Premium for the Long Run and Asset Allocation: A Case of Compounded

Estimation Risk.” Journal of Financial Econometrics 3.1 (2005): 37–55.

Chapter 13For greater detail on the subject of risk and return see Chapters 10, 11, and 12 of: Ross, S. A., R. W. Westerfield, J. J. Jaffe, and G. S. Roberts. Corporate Finance, 5th Canadian ed. Whitby, Ontario: McGraw-Hill

Ryerson, 2008.A Canadian test of the performance of ethical mutual funds using a multi-factor model is: Bauer, R., J. Derwall, and R. Otten. “The Ethical Mutual Fund Performance Debate: New Evidence from Canada.” Journal of

Business Ethics, 2007.Discussions of Canadian tests of APT are found in:

Bodie, Z., A. Kane, A. J. Marcus, S. Perrakis, and P. J. Ryan, Investments, 6th Canadian ed. Whitby, Ontario: McGraw-Hill Ryerson, 2008.Otuteye, E. “How Economic Forces Explain Canadian Stock Returns.” Canadian Investment Review, Spring 1991.Sharpe, W. F., G. J. Alexander, J. V. Bailey, D. J. Fowler, and D. Domian, Investments, 3rd Canadian ed. Scarborough, Ontario: Prentice-Hall Canada, 2000.

Chapter 14The following article contains an excellent discussion of some of the subtleties of using the WACC for project evaluation:

Miles, J., and R. Ezzel. “The Weighted Average Cost of Capital, Perfect Capital Markets and Project Life: A Clarification.” Journal of Financial and Quantitative Analysis 15 (September 1980).

Canadian examples of economic value added analysis are in:Jog, V. “Value and Wealth Creation in Canada.” Canadian Investment Review, Winter 2003, pp. 45–50.

More on economic value added can be found in:Grant, James L. Foundations of Economic Value Added, 2d edition. Hoboken, NJ: Wiley, 2003.Leahy, Tad. “Capitalizing on Economic Value Added,” Business Finance, July 2000 (available online at www.businessfinancemag.com).Stern, J.M., G.B. Stewart, and D.A. Chew, “The EVA Financial Management System,” Journal of Applied Corporate Finance, Summer 1999, and at www.sternstewart.com.

Useful Canadian articles on EVA are:Armitage, H.M., and V. Jog. “Economic Value Creation—What Every Management Accountant Should Know,” CMA Magazine, October 1996.Jog, V. “Value Creation and Credibility of Financial Reporting in Canada.” Canadian Investment Review, Fall 2002, pp. 12–20.Jog, V. “Value and Wealth Creation in Canada.” Canadian Investment Review, Winter 2003, pp. 45–50.Keys, D., M. Azamhuzjaev, and J. Mackey. “EVA, to Boldly Go,” CMA Magazine, September 1999.Schofield, B.A. “Evaluating Stocks,” Canadian Investment Review, Spring 2000.

Chapter 15For further reading on underwriting in Canada and the role of the OSC see:

Ontario Securities Commission Annual Reports and other information at www.osc.gov.on.ca.Two studies of IPO costs in Canada are:

Kryzanowski. L., and I. Rakita, “Is the U.S. 7% Solution Equivalent to the Canadian 6% Solution?” Canadian Investment Review, Fall 1999, pp. 27–34.L. Wang. “Aftermarket Volatility and Underpricing of Canadian Initial Public Offerings.” Canadian Journal of Administrative Sciences, September 2002, pp. 231–249.

Some interesting papers on IPOs in Canada can also be found on the Web at www.cirano.qc.ca:Suret, Jean-Marc, and Maher Kooli. “How Cost-Effective are Canadian IPO Markets?” October 2002.Kooli, Maher, Jean-Francois L’Her, and Jean-Marc Suret. “Do IPOs Underperform in the Long-Run? New Evidence From the Canadian Stock Market,” April 2003.

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Chapter 16The classic articles on capital structure are:

Modigliani, F., and M. H. Miller. “The Cost of Capital, Corporate Finance, and the Theory of Investment.” American Economic Review 48 (June 1958)._____. “Corporation Income Taxes and the Cost of Capital: A Correction.” American Economic Review 53 (June 1963).

Some research on capital structure is summarized in:Smith, C. “Raising Capital: Theory and Evidence.” Midland Corporate Finance Journal, Spring 1986.

The text of Stewart Myers’s 1984 presidential address to the American Finance Association is in the following article. It summarizes the academic insights on capital structure until the early 1980s and points out directions for future research:

Myers, S. “The Capital Structure Puzzle.” Midland Corporate Finance Journal, Fall 1985.

Chapter 17Our dividend irrelevance argument is based on a classic article: Miller, M. H., and F. Modigliani. “Dividend Policy, Growth and the Valuation of Shares.” Journal of Business 34,

(October 1961).Higgins describes the residual dividend approach in: Higgins, R. C. “The Corporate Dividend-Saving Decision.” Journal of Financial and Quantitative Analysis 7, (March 1972).The following examine taxes and dividends in Canada: Adjaoud, F., and D. Zeghal. “Taxation and Dividend Policy in Canada: New Evidence.” FINECO (2nd Semester) 1993,

pp. 141–54. Amoako-Adu, B., M. Rashid, and M. Stebbins. “Capital Gains Tax and Equity Values: Empirical Test of Stock Price Reaction to

the Introduction and Reduction of Capital Gains Tax Exemption.” Journal of Banking and Finance 16 (1992), pp. 275–87. Booth, L. D., and D. J. Johnston. “The Ex-Dividend Day Behavior of Canadian Stock Prices: Tax Changes and Clientele Effects.”

Journal of Finance 39 (June 1984).A relevant article on share repurchases in Canada is: Ikenberry, D., J. Lakonishok, and T. Vermaelen. “Stock Repurchases in Canada: Performance and Strategic Trading.” Journal of

Finance, October 2000.

Chapter 18 Gallinger, G. W., and P. B. Healey. Liquidity Analysis and Management, 2d ed. Reading, MA: Addison-Wesley Publishing, 1991.

Kahlberg, J. G., and K. Parkinson. Current Asset Management: Cash, Credit and Inventory. New York: John Wiley & Sons, 1984.

Vander Weide, J., and S. F. Maier. Managing Corporate Liquidity: An Introduction to Working Capital Management. New York: John Wiley & Sons, 1985.

Maness, T. S., and J. T. Zietlow, Short-Term Financial Management, 3d ed. Cincinnati: South-Western College Publishing, 2005.

Chapter 19We have benefitted from the following books on short-term finance:

Hill, N. C., and W. L. Sartoris. Short-Term Financial Management, 3rd ed. New York: Prentice Hall, 1994, chaps. 6–10.

Maness, T. S. and J. T. Zietlow, Short-Term Financial Management, 3rd ed. Cincinnati: South-Western College Publishing, 2005.

To keep up with Canadian practices, a good source is various issues of Canadian Treasurer, Treasury Management Association of Canada at www.tmac.ca.

Chapter 20An excellent textbook on short-term financial decisions is:

Hill, N. C., and W. L. Sartoris. Short-Term Financial Management, 3rd ed. New York: Prentice Hall, 1994.

Information on credit management in Canada is available from the Canadian Institute of Credit and Finan cial Management, Mississauga, Ontario and from Export Development Corporation’s website: www.edc.ca.

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For more on MRP, JIT, and related acronyms see Chase, Richard B., F. Robert Jacobs, and Nicholas J. Aquilano. Operations Management for Competitive Advantage, 11th ed. Burr Ridge, IL: McGraw-Hill/Irvin, 2005.

Chapter 21The following is a good book on the modern theory of international markets: Shapiro, A. C. Multinational Financial Management. 8th ed. New York: John Wiley & Sons, Inc., 2006.

These two articles describe budgeting for international projects: Lessard, D. R. “Evaluating Foreign Projects: An Adjusted Present Value Approach.” In International Financial Management, ed.

D. R. Lessard. New York: Warren, Gorham & Lamont, 1979. Shapiro, A. S. “Capital Budgeting for the Multinational Corporation.” Financial Management 7 (Spring 1978).

For more information on the relationship between the forward rate and the spot rate, see: Levich, Richard M. “Is the Foreign Exchange Market Efficient?” Oxford Review of Economic Policy 5, no. 3 (1989).

A good discussion of the risks facing Canadian exporters is at the Export Development Canada’s website: www.edc.ca.

Chapter 22A classic article on lease valuation is: Myers, S., D. A. Dill, and A. J. Bautista. “Valuation of Financial Lease Contracts.” Journal of Finance, June 1976.A good review and discussion of leasing is contained in: Smith, C. W., Jr., and L. M. Wakeman. “Determinations of Corporate Leasing Policy.” Journal of Finance, July 1985.Current information on leasing in Canada is provided by the Canadian Finance and Leasing Association at their website: www.canadianleasing.ca.

Chapter 23Current institutional investors’ policies on corporate governance are on the following websites: Ontario Teachers’ Pension Plan: www.otpp.com Caisse de depot et placement du Quebec: www.lacaisse.comFour fascinating paperbacks on LBOs are: C. Bruck. The Predators Ball, The Inside Story of Drexel Burnham, and the Rise of the Junk Bond Raiders, New York:

Penguin Books, 1989; B. Burroughs and J. Helyar. Barbarians at the Gate, The Fall of RJR Nabisco, New York: Harper Perennial, 1991; J. Rothchild. Going for Broke—How Robert Campeau Bankrupted the Retail Industry, Jolted the Junk Bond Market, and Brought the Booming Eighties to a Crashing Halt, Toronto: Simon & Schuster, 1991; A. Risberg. Mergers and Acquisitions, New York: Routledge, 2006.

Chapter 24A highly readable discussion of derivatives use in Canada is: Jalilvand, A., “Why Firms Use Derivatives: Evidence from Canada.” Canadian Journal of Administrative Sciences 16, September

1999, pp. 213–228.A more detailed discussion of derivatives can be found in: Hull, J. Options, Futures and Other Derivative Securities. 6th ed., Upper Saddle River, N.J.: Prentice-Hall, 2006.A non-technical discussion of derivatives and the credit crisis is in: Hull, J., “The Credit Crunch of 2007: What Went Wrong? Why? What Lessons Can Be Learned?” Journal of Credit Risk, 2009.

Chapter 25For a detailed discussion of options read:

Hull, J. Options, Futures, and Other Derivative Securities. Englewood Cliffs, NJ: Prentice-Hall, 6th ed., 2006.

Suggested Readings 5


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