February 2020 | 

Changes in Corporate Finance: Are You Keeping Up?

Changes in Corporate Finance: Are You Keeping Up?

There’s plenty to keep financial professionals awake at night. Changing trade policies and tariffs, global volatility, new technologies, and rising interest rates are just a few reasons. Staying up to date on these developments, and managing the risks and opportunities they represent, could be a full-time job itself.

“Making sound financial decisions depends on updated knowledge,” says Wharton finance professor Itay Goldstein. “Financial managers have to be aware of changes in the landscape, anticipate how their business may be affected, and adjust their policies accordingly.”

In the Advanced Corporate Finance program, Goldstein teaches a session on one of the most traditional financial decisions: debt versus equity. But even that, he says, is dependent on new developments. “Financing a business is about a basic trade off between debt and equity. On one hand, if you use more debt, you save on your tax liability, but it can also bring you closer to bankruptcy. When tax policies change, you have to reevaluate. Managing the capital structure to best take advantage of the changes can increase value significantly. If you don’t, you can leave that value on the table.”

That was an important lesson for Paul Ingholt, now a partner with Guidehouse, who was a senior vice president with Booz Allen Hamilton when he attended the program. “The real strength of the program is that it provides both the broad framework of understanding the capital structure of companies and many specific examples of the decision making associated with that capital structure in all phases of a business’s life cycle. I now have a much better understanding of the factors that are influencing the market and the sector that I work in, as well as the motivations and dynamics involved in different capital strategies.”

Ingholt continues, “Many of the companies I work with are getting ready to sell, or are focused on buying other companies, so it is very helpful to better understand the mechanics of what they are going through. I’m now able to have conversations around why they are taking the steps they are taking, and how the financial dimension works in terms of reaching their strategic objectives.”

Most participants in the program, which Goldstein directs, have a decade or more of experience and a solid understanding of the basics. They choose, as William Fink did, to come to Wharton because they know the importance, and difficulty, of keeping up with changes in the financial landscape.

"I have deep knowledge of finance and business strategy and have been involved in M&A for 25 years,” says Fink, executive vice president and chief lending officer at TD Bank. “Despite this experience, there is always room for greater professional development. In fact, you can never know enough, given the pace of change in business. That is what led me to Wharton. The content delivered by the finance faculty is already adding value for our clients.”

That faculty includes five of Wharton’s top finance and legal studies professors, who teach sessions in the global macroeconomic environment, international corporate finance, mergers and acquisitions, current securities regulations, and fintech — to which an entire day is devoted.

“Financial managers and executives charged with making financial decisions can now base those decisions on data rather than intuition,” says Goldstein. “But just because big data is easily accessible doesn’t mean firms know how to use it or keep it secure.” Goldstein calls financial technologies a “good uncertainty. Many new technologies are being developed and are on the rise in terms of applications. Managers want to be aware of them, understand what their competitors are doing, and when and how they should implement them.”

Carly Xiao, a tech investor with Hyundai, says she was particularly interested in the fintech discussions because of their relevance to her work. When she took the program in 2019, she was US investment lead at Midea Group and did not know much about the sector. “I saw many startups in cryptocurrencies, in blockchain, et cetera, but there was no systematic summary of this industry to tell you what is good and what the shortcomings are,” Xiao says.

“The program was very valuable because it told me what has been happening in the technology end of the finance world,” Xiao continues. “It really helped me understand the ecosystem. It was a good update for me since I’ve been away from school for a number of years. Taking the program has helped me to better evaluate investment opportunities in this sector.”