Financial Theories

As someone who’s been involved in finance for many years, I’ve often wondered why people make certain financial decisions. I’ve seen it time and again: people behave irrationally with their money, even when they know better. To understand these behaviors, we can turn to behavioral theory, which helps explain the complex and often irrational ways […]

Introduction Financial statements help us see a company’s financial health. When I analyze them, I focus on the balance sheet, income statement, and cash flow statement. These documents provide insights into profitability, liquidity, and overall stability. My goal in this article is to explain how to analyze financial statements effectively, with examples and calculations to

Introduction Financial risk management is a critical function in banking, insurance, and investment industries. Traditional risk models, such as Value-at-Risk (VaR) and conditional VaR, fail to capture extreme market movements effectively. This is where Extreme Value Theory (EVT) provides a robust framework. EVT is designed to model rare, high-impact events, making it ideal for measuring

Introduction Financial theory forms the foundation for making decisions in investment, corporate finance, and risk management. At Albany EDU, financial theory is explored from multiple angles, combining traditional concepts with modern advancements. I will take you through the key principles, explaining them in an accessible way while incorporating real-world examples. This article will cover risk

Introduction Mergers and acquisitions (M&A) involve complex decisions that impact shareholders, managers, and other stakeholders. Agency theory explains conflicts that arise when managers (agents) act in their own interests instead of maximizing shareholder (principal) value. Understanding these conflicts helps in structuring deals that minimize inefficiencies and align incentives. The Core of Agency Theory Agency theory

Introduction Investment funds operate within a framework where multiple stakeholders interact. These stakeholders include fund managers, investors, and regulatory bodies. Agency theory explains the conflicts that arise when one party (the agent) makes decisions on behalf of another (the principal). In investment funds, fund managers act as agents for investors who entrust them with capital.

Introduction Agency theory explains conflicts that arise when one party (the agent) makes decisions that impact another party (the principal). In banking, this dynamic appears in multiple relationships: between shareholders and managers, between depositors and bank executives, and even between regulators and financial institutions. Each relationship has its own risks, incentives, and consequences. Understanding agency