Practice Disciplines
Finance
Also Known As Business Finance
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The practice discipline concerned with the management, movement and raising of money, encompassing capital budgeting, dividend policy and capital structure decisions that managers make to build firm value for shareholders.
Facts
Disputed
Discipline ScopeCapital budgeting, dividend policy and capital structure, overlapping with investment banking and securities trading where firms raise capital through bonds and equity. 1 Where finance ends and adjacent practices begin is contested: capital budgeting and capital structure are core, but investment banking and securities trading are sometimes treated as finance's own territory and sometimes as separate practices finance merely overlaps. Cross-Tradition Connections
Associated With
The balanced scorecard's own defining feature is presenting financial measures alongside non-financial ones in one report, extending rather than replacing the purely financial performance measures finance practice traditionally relied on.
Lehman's 2008 collapse, driven by excessive leverage and a failed capital structure, is finance practice's leading case study in capital structure risk and helped precipitate the global financial crisis.
Financial services are, by the industry's own definition, economic services tied to finance and delivered by financial institutions; finance practice is the discipline the whole industry is organized around.
Ford's 1956 initial public offering, one of the largest of its era, is a standard finance-practice case study in capital structure and dual-class share design.
Morgan dominated corporate and investment finance during the Gilded Age.
Buffett's value-investing career, built on capital-allocation theory, is finance practice's most cited real-world case in long-horizon investment decisions.
Sources
1. Wikipedia, Finance
Wikipedialead section, opening definitionQuote, lead section, opening definition
Finance refers to the management, movement, and raising of money, with the related concepts of business finance, investments, and financial markets and institutions.
Wikipedia, Efficient-Market Hypothesis
WikipediaTheoretical background sectionQuote, Theoretical background section
If the price of the stock does not already reflect that information, then investors can trade on it, thereby moving the price until the information is no longer useful for trading.
Wikipedia, Efficient-Market Hypothesis
WikipediaBehavioral psychology sectionQuote, Behavioral psychology section
Behavioral economists attribute the imperfections in financial markets to a combination of cognitive biases such as overconfidence, overreaction, representative bias.
Wikipedia, Bankruptcy of Lehman Brothers
WikipediaAssociated With: Bankruptcy of Lehman Brothers, Bankruptcy filing sectionQuote, Associated With: Bankruptcy of Lehman Brothers, Bankruptcy filing section
The filing remains the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets.
Wikipedia, J.P. Morgan
WikipediaAssociated With: J.P. Morgan, lead sectionQuote, Associated With: J.P. Morgan, lead section
he was the driving force behind a wave of industrial consolidations in the United States at the turn of the twentieth century.
Wikipedia, Warren Buffett
WikipediaAssociated With: Warren Buffett, lead sectionQuote, Associated With: Warren Buffett, lead section
is an American investor and philanthropist who is the chairman and former CEO of the conglomerate Berkshire Hathaway.
Wikipedia, Ford Motor Company
WikipediaAssociated With: Ford Motor Company IPO, introductionQuote, Associated With: Ford Motor Company IPO, introduction
The company went public in 1956 but the Ford family, through special Class B shares, retain 40 percent of the voting rights.
Wikipedia, Financial Services
WikipediaAssociated With: Financial Services Industry, lead section, opening definitionQuote, Associated With: Financial Services Industry, lead section, opening definition
Financial services are economic services tied to finance provided by financial institutions.
Wikipedia, Balanced Scorecard
WikipediaAssociated With: Balanced Scorecard, Characteristics sectionQuote, Associated With: Balanced Scorecard, Characteristics section
The characteristic feature of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report.
Dissenting Readings (2 dissenting readings)
Discipline Scope
Financial markets are not fully informationally efficient. Systematic cognitive biases such as overconfidence, overreaction and representativeness bias cause persistent mispricing that the efficient-market hypothesis cannot explain.
A dissenting reading, from Behavioral economists (Kahneman, Tversky, Thaler)Wikipedia, Efficient-Market Hypothesis, Wikipedia
Discipline Scope
Where finance ends and adjacent practices begin is not settled among scholars. Capital budgeting, dividend policy and capital structure are treated as core by every account, but investment banking and securities trading are sometimes described as finance's own territory and sometimes as related but distinct practices finance merely intersects, with no single boundary drawn as authoritative.
A dissenting reading, from an independent laneWikipedia, Finance, Wikipedia
Frequently Asked Questions
What are the three main branches of finance?
Personal finance, corporate finance and public finance.
Finance is usually divided into personal finance (budgeting, insurance, education, retirement planning), corporate finance (capital structure, dividend policy, capital budgeting decisions) and public finance (government spending, revenue sources and sovereign debt).
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