Course Description
This course explores the issues of company valuation that are special to emerging markets. The emerging economies and especially BRIC countries will likely provide substantial growth opportunities in the world economy. However, risks of investing in these economies are significant compare to developed economies.
In this course we introduce financial models that can help managers to value companies in emerging markets.
This course covers both theoretical and practical sides of investing in emerging markets through course books, cases, articles, homework exercises and guest speaker presentations.

Module Aims and Learning Outcomes
1. To develop an understanding of risks in emerging markets.
2. To develop an understanding of corporate governance in emerging markets.
3. To introduce models on how the cost of capital is estimated in emerging markets.
4. To develop an understanding how to value public, private and startup companies in emerging markets using DCF and relative valuation tools.
5. To construct and use DCF models for valuing assets in emerging markets.
6. To develop an understanding of using real options in making investment decision in emerging markets.

Course Outline
Lecture 1. Characteristics of Emerging Markets
Assigned readings:

• Chapter 2, Investing in Emerging Markets by Robert F. Bruner, Robert M. Conroy
• Chapter 4, Investing in Emerging Markets by Robert F. Bruner, Robert M. Conroy
• Campbell R. Harvey, Claude Erb and Tadas Viskanta (1997). The Making of an Emerging Market. Emerging Markets Quarterly

Lecture 2. Political Risks
Assigned readings:

• Chapter 17, Multinational Business Finance by Eitman, Stonehill and Moffet
• Campbell R. Harvey, Claude Erb and Tadas Viskanta(1996). Expected Returns and Volatility in 135 Countries. Journal of Portfolio Management, pp. 46-58.
• Campbell R. Harvey, Claude Erb and Tadas Viskanta (1996). Political Risk, Financial Risk and Economic Risk. Financial Analysts Journal, pp. 28-46.
• Moody's ratings system

Lecture 3. Corporate Governance in Emerging Markets
Assigned readings:

• Olesya V. Grishchenko, Lubomir P. Litov and Jianping Mei (2002). Private Information Trading and Corporate Governance In Emerging Markets. Stern School of Business
• Stijn Claessens and Joseph P.H. Fan (2002). Corporate Governance in Asia: A Survey.
• Leora F. Klapper, Inessa Love (2002). Corporate Governance, Investor Protection, and Performance in Emerging Markets. World Bank Policy Research Working Paper 2818

Lecture 4. Cross-Border M&A
Assigned readings:

• Chapter 19, Multinational Business Finance by Eitman, Stonehill and Moffet
• Michael Malloy (2003). Due Diligence in Russia: Look Before You Leap. Capital Market Report, 24 July 2003, pp. 14.
• Anusha Chari, Paige P. Ouimet, Linda L. Tesar (2004). Acquiring Control in Emerging Markets: Evidence from the Stock Market

Guest speaker:

• Joel Lautier, CEO at RGG Capital

Lecture 5. Estimating Cost of Capital in Emerging Markets
Assigned reading:

• Chapter 3, Valuation of Companies in Emerging Markets by Luis E. Pereiro
• Campbell R. Harvey (2001). The International Cost of Capital and Risk Calculator.
• Aswath Damodaran (2008). Equity Risk Premium: Determinants, Estimation and Implications. Stern School of Business.
• Javier Estrada (2000). The Cost of Equity in Emerging Markets: A Downside Risk Approach. IESE.
• Roelof Salomons and Henk Grootveld. The Equity Risk Premium: Emerging versus Developed Markets
• Kent Hargis (1999). The Goldman Model of Equity Cost of Capital
• Vashakmadze T. (2008). Calculating equity risk premium for Russian market – an empirical analysis. Global Academic Society Journal: Social Science Insight, Vol. 1, No. 5, pp. 4-15.
• Vashakmadze T. (2009). Impact of the global economic crisis on the optimal capital structure of Russian companies. Global Academic Society Journal: Social Science Insight, Vol. 2, No. 6, pp. 24-37.

Lecture 6. Valuing Companies in Emerging Markets vs. Developed Markets
Assigned reading:

• Chapter 1, Valuation of Companies in Emerging Markets by Luis E. Pereiro
• Chapter 2, Valuation of Companies in Emerging Markets by Luis E. Pereiro
• Chapter 6, Investing in Emerging Markets by Robert F. Bruner, Robert M. Conroy
• Valuation in Emerging Markets. McKinsey Quarterly 2000

Lecture 7. Relative Valuation in Emerging Markets
Assigned reading:

• Chapter 6, Valuation of Companies in Emerging Markets by Luis E. Pereiro

Lecture 8. DCF Valuation in Emerging Markets
Assigned reading:

• Chapter 3, Valuation of Companies in Emerging Markets by Luis E. Pereiro
• Chapter 4, Valuation of Companies in Emerging Markets by Luis E. Pereiro

Lecture 9. Valuing Technology Startups in Emerging Markets
Assigned reading:

• Chapter 7, Valuation of Companies in Emerging Markets by Luis E. Pereiro

Lecture 10. Real Options in Emerging Markets
Assigned reading:

• Chapter 5, Valuation of Companies in Emerging Markets by Luis E. Pereiro
• The Real Power of Real Options. McKinsey Quarterly 1997 No. 3
• Making Real Options Real. McKinsey Quarterly 1998 No. 3

Teaching Methods:
The learning experience will consist of:
In-class:
Lectures, where theoretical foundations and practical applications are presented and explained
Seminars, where students apply theory and practice to deal with case studies.

Self-controlled learning:
Provided learning material is studied individually and/or in groups; the involvement of important citations from business literature will be specifically related to the focal topic of the week.
Relevant learning material is researched and presented.
Over the course of the term each student is expected to select, read, and review two articles involving problems and/or issues in the general areas relating to the stated objectives of the course. Each article review is to consist of no more than three pages. Students may be expected to make an oral presentation of their review to the class. Copies of their article review are due to be submitted the day before the presentation. It is intended that each student benefit from a fairly comprehensive review and discussion of current problems, issues, and trends.

Grading and Course Requirement
The grading in the course has two components. They consist of group work (50%) and a final closed book written exam (50%).
Group work should be done in groups of no more than four (4) people per group. You should form your team due to 2nd session. In groups you have to choose 2 public companies from the same industry but from different emerging markets. You have to analyze and do valuation of chosen companies. Details about group work assignment will be distributed on the 1st session.
For the final exam you will have closed book multiple choice exam, where theoretical questions and exercises will be included.

Reading Materials
Books:

1. Valuation of Companies in Emerging Markets by Luis E. Pereiro.
2. Multinational Business Finance by Eitman, Stonehill and Moffet.
3. Investing in Emerging Markets by Robert F. Bruner, Robert M. Conroy

Also the materials in this course will be delivered through cases and publications in leading practitioners' journals supplemented by a guest speaker with extensive experience in M&A in Emerging Markets (Russia).