Corporate Finance Fundamentals

An understanding of at least the basics of corporate finance is now regarded as essential for undergraduate and postgraduate students of accounting, management and, often, economics. Stephen Ross, Randolph Westerfield and Bradford Jordan have been beneficiaries of the massively growing global market for finance textbooks. Since its first publication - what the authors call their initial public offering - in 1991, this text has gone through eight US editions and a dozen variants (other jurisdictions, foreign-language and international).

The edition reviewed here is the international one, although very little of it is international apart from the cover and the foreign names given to companies in the questions (Taipei Widgets, Minsk Diamonds, Ghiza Fragrances). From the first line onwards ("With millions or even billions of dollars at stake"), it deals with US institutions, US corporate governance, US law and regulation and the US economy. The vocabulary is entirely American. This matters more at some times than at others. For example, it is not useful for all discussion of financial accounting to be based on US accounting principles without any acknowledgement of the significance worldwide of International Financial Reporting Standards, which can produce reports with materially different results.

The book has strengths as a medium for teaching quantitative methods, but it is not in any sense a critical text. The (brief) discussion of corporate governance in the first chapter briskly concludes that "stockholders control the firm and ... stockholder wealth maximisation is the relevant goal of the corporation" (although there "will undoubtedly be times when management goals are pursued at the expense of the stockholders"). Stakeholders are mentioned, but this is a group made up solely of those with "a claim on the cash flows of the firm". The overall impression given by the text is that the only major problems in corporate finance are mathematical ones.

Who is it for? As an introduction to quantitative techniques, it would fit into an introductory course at undergraduate or masters levels.

Presentation: There are quantities of In-Text Study Features - indeed, there are more features than text. Some are very helpful: for example, the clearly set- out worked examples and numerous graded questions for practising quantitative methods, all of which are helpful as a basis for tutorials, revision and independent study. Less welcome is the plethora of flashcard-like definitions and axioms, which again contribute to the idea of corporate finance as a subject with little space for debate or challenges to received ideas.

Would you recommend it? I would recommend it as a basis for learning and practising methods; but this text is not adequate as a critical introduction to international corporate finance in an economic context.