Capital Market-Driven Corporate Finance

Malcolm  Baker

Abstract

Much of empirical corporate finance focuses on sources of the demand for various forms of capital, not the supply. Recently, this has changed. Supply effects of equity and credit markets can arise from a combination of three ingredients: investor tastes, limited intermediation, and corporate opportunism. Investor tastes, when combined with imperfectly competitive intermediaries, lead prices and interest rates to deviate from fundamental values. Opportunistic firms respond by issuing securities with high prices and investing the proceeds. A link between capital market prices and corporate finance can, in principle, come from either supply or demand. This framework helps to organize empirical approaches that more precisely identify and quantify supply effects through variation in one of these three ingredients. Taken as a whole, the evidence shows that shifting equity and credit market conditions play an important role in dictating corporate finance and investment.

Citation:

Baker, Malcolm. "Capital Market-Driven Corporate Finance." Annual Review of Financial Economics 1 (December 2009): 181–205.

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Supplement | HBS Case Collection | April 2018

Celgene

Malcolm Baker and Emily R. McComb

In February 2011, Adam Koppel, a Managing Director at Brookside Capital, the public equity arm of Bain Capital, must decide whether to increase or exit the firm’s position in Celgene Corporation. News has emerged that raises potential safety concerns associated with Celgene’s key drug, Revlimid. In response, Celgene’s share price has traded down 20% in the last two months, and is now almost 10% below the level where Brookside made their initial investment.

Keywords: life sciences; biotechnology; public market investing; Celgene; Revlimid; hedge fund; valuation; growth stocks; Valuation; Investment; Decision Choices and Conditions; Analysis;

Citation:
Baker, Malcolm, and Emily R. McComb. "Celgene." Harvard Business School Spreadsheet Supplement 218-743, April 2018. View Details

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Case | HBS Case Collection | March 2018

Celgene

Malcolm Baker and Emily McComb

In February 2011, Adam Koppel, a Managing Director at Brookside Capital, the public equity arm of Bain Capital, must decide whether to increase or exit the firm’s position in Celgene Corporation. News has emerged that raises potential safety concerns associated with Celgene’s key drug, Revlimid. In response, Celgene’s share price has traded down 20% in the last two months, and is now almost 10% below the level where Brookside made their initial investment.

Keywords: life sciences; biotechnology; public market investing; Celgene; Revlimid; hedge fund; valuation; growth stocks; Valuation; Investment; Decision Choices and Conditions; Analysis; Biotechnology Industry;

Citation:
Baker, Malcolm, and Emily McComb. "Celgene." Harvard Business School Case 218-094, March 2018. View Details

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Supplement | HBS Case Collection | March 2018

Celgene (B)

Malcolm Baker and Emily McComb

In February 2011, Adam Koppel, a Managing Director at Brookside Capital, the public equity arm of Bain Capital, must decide whether to increase or exit the firm’s position in Celgene Corporation. News has emerged that raises potential safety concerns associated with Celgene’s key drug, Revlimid. In response, Celgene’s share price has traded down 20% in the last two months, and is now almost 10% below the level where Brookside made their initial investment.

Keywords: life sciences; biotechnology; public market investing; Celgene; Revlimid; hedge fund; valuation; growth stocks; Valuation; Investment; Decision Choices and Conditions; Analysis; Biotechnology Industry;

Citation:
Baker, Malcolm, and Emily McComb. "Celgene (B)." Harvard Business School Supplement 218-099, March 2018. View Details

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Capital Market-Driven Corporate Finance

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