Introduction to Corporate Finance

1: The Scope of Corporate Finance

signing bonuses of $10,000 or more, and performance bonuses that, for highly ranked bankers, might

equal their base salaries in a good year. The remuneration does depend on the area of investment banking:

corporate finance, mergers and acquisitions and structured finance tend to be more generously rewarded

compared with margin lending or property finance. Employees who advance in the investment banking

business find that their incomes often rise rapidly. Success in this industry demands good analytical and

communication skills, while social and networking skills also pay handsome dividends. Much of the

growth in investment banking over the foreseeable future is likely to come from two sources: the ongoing

development of new financial products and services, and the continued internationalisation of corporate

finance.

Money Management

The 1980s and 1990s were very good for share market investors and finance professionals employed

in the money management industry. The funds management industry has been challenging over recent

years because of a highly volatile market that has produced very low returns on average. This industry

includes investment advisory companies, mutual fund companies, superannuation fund managers, trust

departments of commercial banks, and the investment arms of insurance companies. In fact, the money

management industry encompasses any person or institution that acts as a fiduciary, a person who invests

and manages money on another’s behalf.

In recent decades, three powerful trends have begun to create a rapidly growing demand for money

management services in Australia. First, the bulk of the Baby Boomers (those born between 1946

and 1964) have entered their peak earning years and are beginning to invest large sums to prepare for

retirement. Because many Baby Boomers lack the financial expertise to handle their own finances, the

demand for professional money managers has surged.

Second, Australian government legislation introduced in 1992 requiring all employees in Australia

to be a member of a superannuation or retirement pension fund gave a tremendous impetus to the

collection of funds to be managed for investment. More than $1 billion per week was already being

collected by superannuation funds in the early 2000s, and that figure has grown.

The third major force fuelling the growth of the money management industry has been the

institutionalisation of investment. Whereas in the past, individuals held most financial assets

(especially ordinary shares), today, institutional investors dominate the markets. For example,

approximately two-thirds of Australian stock exchange shares are held by institutions, not

individuals. Of course, these money managers are not the owners of the securities they invest in,

but they do hold securities and make investment decisions for their clients. This trend toward

professional management of institutionally held financial assets continues to create employment

opportunities in the money management industry. Table 1.3 describes career opportunities in

money management.

Consulting

Management consulting jobs are highly prized by business school graduates. Consultants are hired by

companies to analyse companies’ business problems, processes and strategies, and to make and, possibly,

to implement associated recommendations. Consulting positions offer a unique opportunity early in

your career to work with a broad range of businesses on a wide range of issues, and compensation in this

industry often rivals pay in the investment banking field. The nature of the work means that consultants

can expect to spend much of their time on the road.

fiduciary

A person or institution who

invests and manages money

on another’s behalf

Do you see yourself working

in the finance industry in five

years, or in another industry?

Does your current career plan

include work in the finance

industry?

thinking cap

question