HOFSTRA UNIVERSITY
                             FRANK G. ZARB SCHOOL OF BUSINESS

“to provide students with a perspective on the integration of the functional areas of business, while maximizing the
use of analytical skills and knowledge for decision m aking in a contemporary global business environm ent.

                                       DEPARTMENT OF FINANCE

                          FIN 225 - SEMINAR IN INVESTMENT BANKING
                                           FALL 2004

INSTRUCTOR'S NAME                                       Dr. George J. Papaioannou
OFFICE HOURS                                            TU 2:30 -3:30 & 5-6 pm ; TH 2:30 - 3:30 pm
OFFICE LOCATION                                         209 W eller H all
PHON E #                                                463-5141
E-MA IL ADDRE SS                                        FINGJP@HOFSTRA.EDU
FACULTY WEB PAGE                                        WW W.HOFST RA.EDU; click on
                                                        faculty; faculty web p ages; P


Location of Department Office                           221 W eller H all
Phone # o f Department                                  463-5698
Department Chair                                        Dr. Nancy H uckins

Study of investment b anking activities, including their regulatory, institutional and market environment, with
extensive reference to the global marketplace. Analysis of the main investment banking services with emphasis on
the mechanics and econ omic s of the issuance process. Analysis of the market for new issues and ap praisal of their
spread and price performance. Consideration of ethical, technological and diversity issues in investment banking

FIN 202.
Note: Investment banking is a diverse field that brings together corporate finance (mostly valuation) and capital
markets. Students are expected to have a good understanding of these topics and, if necessary, to rely on self-study
to cover any gaps in these areas of finance.

INVESTMENT B ANKING OP ERATIONS AND TH E NEW ISSUES MA RKET                               Lecture Notes.
George Papaioannou. Unpublished manuscript. (LN)

VALUATION, T. C ope land, T . Koller, J. M urrin, Jo hn W iley & Sons, Latest Edition. (V)

1) Jo urnal articles placed on E lectronic Re serve and the Desk Reserve at the A xinn Lib rary.(R)
2) Hando uts as ap propriate.
Students are expected to develop an understanding of the services investment banks offer and how they organize
their operations and compete internationally. They are also expected to acquire a comprehensive understanding of
how the issuance process for securities works and how the new issues market functions in the U.S. and
internationally. Finally, students are expected to apply analytical techniques and theory on actual security offerings
with the purpose to develop experience and insights regarding the valuation, price behavior and structure of new
issue offerings. These learning objectives will be achieved through lectures by the instructor, class discussion s,
problem solving and essay questions in exam s, and a "real world" term project.

To b e eligible for a make up examination, a student must submit to the instructor written documentation of the
reason for missing a scheduled examination due to medical problems or death of an immediate family member. The
instructor (not the student) determines whethe r and when a mak e up is to be given. If a make up exam ination is to
be given, the instructor will determine the type of make up examination. If the student misses (for any reason) the
scheduled make up examination, additional make ups are not permissible.
Instructor’s Note: Since this class has take-home exams, refer to appropriate section below for specific details on
missed or late exams.

Incomplete work must be completed and subm itted to the instructor for a passing or failing grade by the end of one
calendar year from the close of the semester or se ssion in which the course was taken. After this deadline, the only
way the graduate student can receive cred it for the co urse is to register fo r and pass the course (original inco mplete
remains on record).

The student must give appropriate and serious reason for an INC grade . An INC grade will be granted if the student
has a passing grade on work completed up to the time of request. Given that the course requires a team project,
receiving an INC grade without fulfilling the work for the team project within the semester will require individual
com pletion of the project.

Give n the nature of this class and the dive rsity of the sub ject matter attendance is imp ortant and m andatory. Class
attendance will be used toward establishing a record of class participation. Accordingly, unexcused absences
will be penalize d by three points each. Excused absences are for reasons similar to those that apply for Make Up
Exams (read abo ve).

In addition to regular attendance, students are expected to actively p articipa te and contrib ute to class discussions.
My impre ssion o f each student’s class participatio n will be factored into the final course grade.

Students will be evaluated on the basis of the following:
1.       A team p roject requiring the analysis of initial public offerings.
2.       Two take-home exams.
3.       Regular and active class participation.

Details are provid ed separately.

Team Project                                                       50%
Exams                                                              40% (20% for each exam)
Class discussions and participation                                10%

In addition, class attendance will affect grade as explained above.
Term project. Stude nts, orga nized in groups, will co mplete a term project which involves analysis of two actual
IPO s. This project has the dual objective of (a) to allow students to apply financial analysis and research
organizational skills in the challenging investment banking task of pricing an issue and (b) help students develop
insights into the structure o f the underwriting costs and price behavior of new issues through comp arative analysis.
Guidelines are provided below.

Take-home Exam s. The will be two exams wh ich will include problems (when appropriate) and questions from the
reading materials, i.e., the Lecture N otes, the text, the reading list and any Handouts.

Class discussions. Students will discuss cases, topics or readings as assigned through out the course. There are four
Class Discussions for which you are required to submit sum maries of your discussion points and analysis; these
will be counted as p art of your class p articipa tion.
In addition, other class discussion material will be distributed in advance. This material may include quantitative
exercises or hypothetical cases that help discuss and analyze aspec ts of the sub ject matter. Stud ents are expe cted to
be prepared with respect to these materials.
                             COURSE OUTLINE
MODULE ONE:     Investment Banking: Services, Operations, and Industry
Class 1: Sept. 7

Introd uction: In vestment Ba nking in th e Interm ediation Proc ess
Investment banking functions and their importance; investment versus commercial banking; overview of the
investment banking industry today and some historical perspectives.

Investment Banking Services
Primary and supp lementary investmen t banking services; be nefits to clients.

RE AD ING S: (LN ) Part A: Ch . I

E-D istribution of Class Discussion #1. Notes and information are o n E-Rese rves.

Sept. 14 NO C LASS

Class 2: Sept. 21

Description of Investment Banking Activities and Operations
Overview of underwriting, corporate finance, market making, trading, brokerage, risk management and money
managem ent. Organizing and integrating activities: diversification versus specialization; managing conflicts of

Organizational and Financial Aspects of Investment Banking Activities
Production process and organizational d esign for deal making; staffing and compensation; ma naging clienteles -
price versus relationship banking; benefits from innovation and financial engineering; assets, liabilities and
profitability performance.

READINGS: (LN) Part A: Ch. IV & V.

Class 3: Sept. 28

Regulation of Investment Banking Activities
The Financial Services M ode rnization Act of 1999; the Glass-Steagall Act o f 193 3 and its legacy; regulation in
foreign marke ts.

Investment Banking Industry: Structure and Competition
The U.S. and internation al industry structure ; competition and globalization factors; investm ent banking m arkets in
Europe , Japa n, and rest of the world ; competing in the global market; the impact of internet.

READINGS: (LN) Part A: Ch. II & III; ( R ) 1 & 2.

Class Discussion #1: The Con solidation o f the Investm ent Banking Industry. (Sub mit Sum mary)
MODULE TWO: Securities Issuance: Regulation, Process,
                Underwriting Costs and Compensation
Class 4: O ct. 5

M arkets and Regulation
The Acts of 1933 and 1934; public and private offerings; Rules 415 and 144a.

RE AD ING S: (LN ) Part B: C h. I, II, III.

Types of O fferings and Co ntracts
Public and private issues; primary and secondary offerings; traditional and shelf registration filings; negotiated and
com petitive o fferings; seasoned and initial public offerings; general cash offers and rights issues; firm co mmitment,
stand-by agreem ents, and "b est efforts" contracts.

RE AD ING S: (LN ) Part C: Ch. I

Class 5: Oct. 12

The Mechanics of the Issuance Process in the U.S.
Origination, registration, underwriting, pricing and placement. Syndication, issue allocation and comp ensation.
Afterm arket activities: price stabilization; over-allotment o ption; and lock-out provisions. Ethical issues in
marketing new securities.

RE AD ING S: (LN ) Part C: Ch. II; (R) 3, 4

Issuance Mechanics in International Offerings
Offering metho ds in foreign markets; global offerings; eurobonds; euro equities; ADRs & GD Rs; privatizations.

REA DIN GS: (LN) P art C: Ch. III; (R) 5

E-D istribution of Class Discussion #2.

Class 6: Oct. 19

Issuance Costs
The explicit, implicit, and comb ined spreads; underwriting services under different offering methods and contracts;
determination of underwriting co sts and com pensation; em pirical factors that affect spreads.

READINGS: (LN) Part C: Ch. IV; (R) 6.

Class Discussion #2: Cost implications o f differen t issuance methods: Bookbuilding, subscription and on-line
m ethods. (Submit Sum mary)

Distribution of first take-home exam on Module Two.
MODULE THREE: New Issue Prices and Spreads; Evaluation of Decisions
Class 7: Oct. 26

Theory and Evidence on Prices and Performance of New Issues
Short- and long-run price performance of new issues: theory and empirical evidence; the "hot-issues” market for
IPOs; post-issue operating performance. The price performance of foreign IPOs and privatization issues. Methods
for measuring and assessing performance.

READING: (LN) Part D: Ch. II, III; (R) 7, 9, 10, 11, 13.

Empirical Evidence o n Issuance Co sts
Und erwriting and other c osts of IPO s, SEO s and debt offerings.

RE AD ING : (LN) Part D: C h. IV.

                                 ***First Take-Home Exam is Due Now***

Class 8: N ov. 2

Financial Evaluation of the Offering Decision
Evaluation o f the dec ision to go public with an IPO , have a seasoned equity offering or a debt offering.

RE AD ING : (LN) Part E: Ch. I

E-D istribution of Class Discussion #3.

Class 9: N ov. 9

Decisions in Structuring Securities Issues
Evaluation o f decisio ns with respect to: type o f contract, registration method ; underwriting m ethod ; type of m arket;
selection of the underwriter and auditor; and choosing the m arket for listing.

READINGS: (LN) Part E: Ch. II; (R) 8, 12

Class Discussion #3: Evaluation of pricing an d cost factors. (Sub mit Sum mary)

Distribution of second take-home exam on Module Three

MODULE FOUR: Topics on Valuation and Corporate Restructuring
Class 10: Nov. 16

Valuing IPO shares
Projecting cash flows and estimating the cost of capital; applying the comparab le firms multiples approach;
manage rial and com petitive factors; deciding o n the final offer price. Valuation o f internationally offered shares.

RE AD ING : (LN) Part G, C h. I;(R) 15; (V ) Part Two and Part Three as needed.
E-Distribution of material on valuation case/problem.

                                      ***Second take-home exam is due now***

Class 11: Nov. 23

Valuation in Corpo rate Restructurings process of searching for value creation through restructuring; the pricing of
equity under various types of restructurings; evaluation o f mergers & acquisitions.

READING: (LN) Part F: Ch. I & Part G: Ch. II, III, and IV.

Inve stmen t ban kers in M &A deals
The role, services and comp ensation of investment banks in corp orate M &A deals.

RE AD ING : (LN) Part F: Ch. I

Class 12: Nov. 30

Class Discussion #4: Case on valuation. (Submit Sum mary)

Class 13: Dec. 7

Valuation of Bonds
Estimating bond yields and prices; impact of bond features; bond yields for privately and
pub licly place d bo nds.

READING: (R) 14.

Class 14: Dec. 17

Class p resentation an d sub mission of IPO p roject.

                                                                        I hope you enjoy this course

To top