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Economics & Finance

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published: 25 Jun 2018

  • Topic: Economics & Finance
  • Region: Global

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Abstract:
This exercise demonstrates one difficulty in distinguishing between luck and skill. Participants individually roll dice to simulate the performance of fund managers. Some fund managers have a greater chance of success than others, but the lower performers are more plentiful. The chance element in observed performance makes it challenging to determine a given manager’s type (a genius or a dart-throwing monkey).

Pedagogical Objectives:
Illustrate in a hands-on way the challenge of distinguishing between skill and luck. Encourage greater skepticism when evaluating the basis for performance.

Keywords:
Chance, Luck, Bias, Skill, Probability

published: 23 Apr 2018

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Abstract:
Private equity firm Clayton, Dubilier & Rice (CD&R) is preparing a bid for leading US car rental agency Hertz. By replacing Hertz’s top managers, improving capital management and driving down operating costs, CD&R sees an opportunity to nearly double EBITDA. However, the turnaround involves significant risks, which CD&R must weigh in preparing its bidding strategy. Students are required to assess and value the business, evaluate a post-acquisition operating turnaround plan requiring new leadership, select a financial structure to mitigate significant cyclicality, and craft a winning bidding strategy in the context of a competitive auction.
Please visit the dedicated case website to access supplementary material.

Pedagogical Objectives:
This case underscores the importance of creating a differentiated investment thesis (no matter how slight the advantage) in a competitive auction setting, inviting students to develop and support their own investment thesis. It demonstrates how the operating capabilities of PE firms (like CD&R) translate into a valuation exercise, investment thesis and operating plan. It explores how the firm’s strategic bent shapes its bidding strategy and willingness to pay for a business that has the prospect of achieving high returns for its fund, as well as identifying sources of advantage in deal sourcing, expertise partnering and turnaround management in the private equity domain.

Keywords:
Private Equity, Winner’s Curse, Auction, Turnaround, Bidding, Rental Car, Investment Strategy, Investment Thesis, Due Diligence, Hertz, Ford, Valuation, Synergies, Operating Efficiency

published: 24 Jul 2017

  • Topic: Economics & Finance
  • Industry: Hydrocarbons, liquified natural gas
  • Region: North America

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Abstract:
After the collapse of world oil prices during the late 1990s, Cheniere began shifting its business focus away from upstream exploration and toward LNG regasification to take advantage of a projected decline in domestic natural gas production and the natural gas supply deficit that was expected in the US over the next decade. Thanks to fracking, precisely the reverse happened and Cheniere shifted from importing gas to gas export with the Sabine Pass LNG facility that came on line in 2016.

Pedagogical Objectives:
The case provides (i) an overview of the project finance debt market, a growing area of specialty finance; (ii) consideration of the decision making and risks associated with a long-lived project and various ways to mitigate risks using project finance; (iii) an introduction to the liquefied natural gas (LNG) market, a capital-intensive sector and major component of global project finance; (iv) a basic primer on credit and relative value analysis; (v) insight into how bank regulatory changes and other responses to the 2008-09 global financial crisis brought innovation and other unintended market consequences into the project finance arena; (vi) an understanding of the integration and interplay between various market segments, functions and participants.

Keywords:
Global Energy Markets, Liquified Natural Gas (lng), Fracking, Gas Liquification, Project Finance, Risk Management, Energy Infrastructure, Corporate Restructuring

published: 29 Mar 2017

  • Topic: Economics & Finance
  • Region: Global

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Abstract:
The world is currently seeing a rise of populist leaders in both Europe and the US (Donald Trump), as well as in some emerging markets. Is this linked to the rise in inequality over time, whereby many of the gains have accrued to the richest 1%? This short case provides the background and statistics underpinning the rise in income and wealth inequality in advanced economies, and sets up a discussion on why we should care about inequality. Subsequently, it explores the link between inequality and equality of opportunity, political instability, financial crises and economic growth. It closes by highlighting where businesses are truly a force for good and the circumstances in which a greater focus on distribution is warranted.

Pedagogical Objectives:
The objective is to facilitate an understanding of the interlinked issues of politics, economics, distribution and growth. The case highlights the rise in income inequality and whether this is linked to political shifts in Europe and the US. It facilitates understanding of when and where inequality matters, the consequences of rising inequality, and the circumstances where business leaders must pay more attention to distributional aspects.

Keywords:
Inequality, Income Distribution, Gini Coefficient, Populism, Donald Trump, Inequality and Political Instability, Inequality and Financial Crises

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published: 29 Mar 2017

  • Topic: Economics & Finance
  • Region: Global

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Abstract:
The world is currently seeing a rise of populist leaders in both Europe and the US (Donald Trump), as well as in some emerging markets. Is this linked to the rise in inequality over time, whereby many of the gains have accrued to the richest 1%? This short case provides the background and statistics underpinning the rise in income and wealth inequality in advanced economies, and sets up a discussion on why we should care about inequality. Subsequently, it explores the link between inequality and equality of opportunity, political instability, financial crises and economic growth. It closes by highlighting where businesses are truly a force for good and the circumstances in which a greater focus on distribution is warranted.

Pedagogical Objectives:
The objective is to facilitate an understanding of the interlinked issues of politics, economics, distribution and growth. The case highlights the rise in income inequality and whether this is linked to political shifts in Europe and the US. It facilitates understanding of when and where inequality matters, the consequences of rising inequality, and the circumstances where business leaders must pay more attention to distributional aspects.

Keywords:
Inequality, Income Distribution, Gini Coefficient, Populism, Donald Trump, Inequality and Political Instability, Inequality and Financial Crises

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published: 27 Feb 2017

  • Topic: Economics & Finance
  • Industry: Education, paper, research
  • Region: Global

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Abstract:
The case focuses on the main issues faced by two US-listed Chinese companies – Orient Paper (NYSE MKT: ONP) and New Oriental Education and Technology Group (NYSE: EDU) – when they were attacked by Muddy Waters, LLC. Interestingly, the seemingly similar responses of the two “Orientals” resulted in widely disparate outcomes, offering lessons to emerging market firms eager to embrace the global capital markets. The case aims to help students understand the mechanism of short selling in the context of “bear” attacks, and expose the problems that attract short sellers’ attention, as well as the actions companies can take to deal with them. It also explains the normative role that short selling plays in the market: to discipline corporate behaviour and improve market efficiency.

Pedagogical Objectives:
The case is suited for any (or all) of the following purposes: 1. To introduce the process of short selling and the parties involved. 2. To identify the common problems that tend to attract “bear” attacks, from the experience of the two Orientals and other examples. Four categories are described in detail. 3. To explore actions that companies can take in dealing with short selling. A bear attack is not necessarily bad for a company; a plunge in the stock price in the short term creates an opportunity for good companies (as well as top management) to legally buy back shares at a lower price. 4. To understand the normative implications of short selling as part of ‘the invisible hand of the market’ to discipline corporate incentives.

Keywords:
Short Selling, ‘bear’ Attacks, Overseas Listing, Global Capital Market, Chinese Companies Overseas Ipo, Corporate Transparency, Invisible Hand, Market Efficiency, Responses to Short Selling, Countering ‘bear’ Attacks

published: 28 Oct 2016

  • Topic: Economics & Finance
  • Industry: Agriculture
  • Region: Asia

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Abstract:
e-Choupal, an initiative of ITC Ltd. launched in 2000, endeavours to place computers with internet connectivity in villages in rural India. ‘Choupal’ is Hindi for ‘gathering place’: the computer facility serves to bring villagers together for exchange of information and as an e-commerce hub. Although the primary objective of the project is to bring efficiency to ITC’s procurement process, an important byproduct is the empowerment of farmers in areas where e-choupals are established.

Pedagogical Objectives:
. Start by comparing the state of Indian agriculture before and after implementing this initiative. . Explore the value chain of the agriculture sector in India, and where the redundancies are. . Understand how the e-Choupal initiative benefits farmers as well as ITC . Debate whether ITC could leverage on e-Choupal’s success to enter fields such as improving education and healthcare in rural India – is the model replicable in other social impact settings?

Keywords:
E-Choupal, Agriculture, Technology, Itc, India, Revolutionizing, Farming, Exchange of Information, Supply Chain, Farmer, Computer

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published: 28 Oct 2016

  • Topic: Economics & Finance
  • Industry: Agriculture
  • Region: Asia

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Abstract:
e-Choupal, an initiative of ITC Ltd. launched in 2000, endeavours to place computers with internet connectivity in villages in rural India. ‘Choupal’ is Hindi for ‘gathering place’: the computer facility serves to bring villagers together for exchange of information and as an e-commerce hub. Although the primary objective of the project is to bring efficiency to ITC’s procurement process, an important byproduct is the empowerment of farmers in areas where e-choupals are established.

Pedagogical Objectives:
. Start by comparing the state of Indian agriculture before and after implementing this initiative. . Explore the value chain of the agriculture sector in India, and where the redundancies are. . Understand how the e-Choupal initiative benefits farmers as well as ITC . Debate whether ITC could leverage on e-Choupal’s success to enter fields such as improving education and healthcare in rural India – is the model replicable in other social impact settings?

Keywords:
E-Choupal, Agriculture, Technology, Itc, India, Revolutionizing, Farming, Exchange of Information, Supply Chain, Farmer, Computer

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published: 23 Sep 2016

  • Topic: Economics & Finance
  • Industry: Banking
  • Region: Global

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Abstract:
The case discusses the financial strategy of ING Direct, a telephone/internet retail bank that has been growing rapidly in eight countries. It presents both the deposit pricing strategy, and the asset allocation of the bank.

Pedagogical Objectives:
The case study triggers a discussion about interest rate risk, economic capital allocation and RAROC in banking.

Keywords:
Banking, Internet Banking, Interest Rate Risk, Bank Regulation, Economic Capital, Raroc

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published: 23 Sep 2016

  • Topic: Economics & Finance
  • Industry: Bank
  • Region: Europe

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Abstract:
The case presents the strategy of the British bank Lloyds TSB (called today Lloyds Banking Group) over the years 1983-2007. A long time span allows to evaluate the financial results of a long-term strategy.

Pedagogical Objectives:
The objectives of the case is twofold: discuss the trade-off between short-term profit and long-term value maximization, and the trade-off between a focus and a diversified strategy.

Keywords:
Bank Strategy, Diversification, Bank Valuation, Corporate Governance, Value Creation, Strategy and Implementation

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