Corporate finance

Corporate finance deals with the way in which corporate financial policies and decisions are formulated. Such decisions can involve capital structure, investments, mergers and acquisitions, initial public offerings, security issuance, dividends and ownership structure. The general proposition is that firms exist entirely for the benefit of their shareholders - everything else is of subsidiary importance. Therefore firm decisions must maximize shareholder value before any other consideration. An important subfield is that of corporate governance which is the study of institutional mechanisms by which corporations can commit to leadership and other structures that essentially enforce first best outcomes for individual shareholders.

Asset pricing

The subfield of asset pricing theory encompasses the understanding of how security prices evolve and are determined. There are many essentialities of this process such as how prices are determined in equilibrium, how rational agents attempting arbitrage can link prices in different markets, how market makers in exchanges match buyers and sellers (market microstructure), how agents utilize information in making their trades and how this enters the pricing mechanisms, how intermediaries such as money managers and hedge funds affect markets and prices and finally the field of behavioral finance which asks whether observed prices and investment decisions can be rationalized by models of optimising agents.

The field of finance benefits from a number of key advantages that distinguish it from other fields of business. The theory is well developed and very rigorous. The mathematical foundations of the field are elegant and precise. Data availability is rich and ever increasing. The field has enormous practical relevance and is becoming more relevant to the lives of everyone. And the field is very scientific, as represented by the many individuals that have been recognized by winning a Nobel prize.