Book Review

This book describes the theory and practice of corporate

finance. We hardly need to explain why financial

managers should master the practical aspects of their

job, but we should spell out why down-to-earth, redblooded

managers need to bother with theory.

Managers learn from experience how to cope

with routine problems. But the best managers are

also able to respond to change. To do this you need

more than time-honored rules of thumb; you must

understand why companies and financial markets

behave the way they do. In other words, you need a

theory of finance.

Does that sound intimidating? It shouldn't.

Good theory helps you grasp what is going on in

the world around you. It helps you to ask the right

questions when times change and new problems

must be analyzed. It also tells you what things you

do not need to worry about. Throughout this book

we show how managers use financial theory to

solve practical problems.

Of course, the theory presented in this book is not

perfect and complete—no theory is. There are some

famous controversies in which financial economists

cannot agree on what firms ought to do. We have not

glossed over these controversies. We set out the main

arguments for each side and tell you where we stand.

Once understood, good theory is common sense.

Therefore we have tried to present it at a commonsense

level, and we have avoided proofs and heavy

mathematics. There are no ironclad prerequisites for

reading this