Behavioral Finance Economics 437 – Spring 2009 Professor Burton

1. Behavioral FinanceEconomics 437 – Spring 2009Professor Burton March 2008 Oct-Nov 2008 April 2009 April 9, 2009

2. Update on MarketsThe Dow Jones in 2009 Stocks: 8,776 7,837 6,547 Jan 1 Mch 9 Apr 8 April 9, 2009

3. 30 Year Treasury Bond 4.5 % 3.66 % 2.5 % 2.0 % Nov 08 Dec 08 Jan 09 April 8 09 April 9, 2009

4. 3 Month Treasury Bill 2.0 % 0.18 % mid Sept 08 Dec 08 Apr 8 09 April 9, 2009

5. Principal Agent Problems – Corporate Governance • Public Corporations • What are they? • What are the issues • Executive Compensation • Risk Management • Earnings Management • If A Public Company Defaults, What Then? • Chapter 7 bankruptcy • Chapter 11 bankruptcy • Bailouts? April 9, 2009

6. Corporation vs Partnership • In the good old days: • Partnerships • Unlimited liability • No taxation at the partnership level (flow through) • Corporations • Liability limited to investment • Taxation (roughly 35 %) at the corporation level • Shareholders receive dividends • Now, there is such a thing as an LLC • Limited Liability Corporation (functions essentially like a partnership except “limited investors” have their liability limited to their investment. Managing member has unlimited liability. April 9, 2009

7. Public vs Private • Public • Generally, must be a corporation • Means you raise money from the public • Governed by Securities Act of 1933 and 1934 • Must file regularly with the SEC • 10 Q, 10 K • Governed by Board of Directors elected by shareholders • Private • Partnership , LLC, or corporation (in other words, any structure works) • Cannot publicly solicit funds (can’t raise money from the public) • Limited number of investors • Vast majority of companies in the US are private April 9, 2009

8. The End April 9, 2009