Berk and DeMarzo 'Corporate Finance'

Berk and DeMarzo - Corporate Finance

In a globalizing economy, perhaps no subject is as global in scope as corporate finance - so Pearson has taken a uniquely global approach to launching a new "Corporate Finance" textbook to universities around the world.

Authored by two California-based economists for Pearson, the new textbook was published in English around the world at the same time, and already has sold nearly half its tens of thousands of copies outside the U.S.

"The students really liked it," says Claes Bergstrom, professor at the Stockholm School of Economics, one of more than 60 non-U.S. universities - from Taiwan to Macedonia to Russia - that adopted the book last year in its first full year on the market. "It's well-written, it's explicit when it comes to formal reasoning, and it provides the necessary formulae."

For Pearson, "Corporate Finance" represents a new publishing formula that reflects the company's enlarged international footprint. The company has expanded aggressively into new markets, including fast-growing Asia, Africa and the Middle East, so revenue outside North America now accounts for about one-third of Pearson's education sales.

'Finance is global by nature'

Given the increased importance of the non-U.S. market, Pearson developed "Corporate Finance" to appeal to universities and business schools around the world from Day One, and hopes to replicate the model with other textbooks in the future.

"Finance is global by nature, so there was no reason why one book couldn't work well in different places," says Donna Battista, Pearson's editor-in-chief for economics and finance, based in Boston. But not just any book, she adds.

"Corporate Finance" was the product of six years labour by Jonathan Berk and Peter DeMarzo, both now teaching at Stanford University, and it brought a 21st-Century perspective to a subject whose leading textbooks had been around for decades.

"The biggest change in the past 25 years is the huge amount of evidence that's been uncovered in this field," says Mr. Berk, 46, a native of South Africa. "For example, there's now pretty strong evidence that you can make money by momentum trading" - or investing in stocks that have moved significantly on high volume - "and it doesn't do anybody any good to ignore this."

Generally, finance textbooks need to be revised every two or three years, with new examples, but after many years revisions are less effective, says Patrick Leow, an international strategist for Pearson Education based in Upper Saddle River, New Jersey. "To add onto a book is like trying to patch a leaky ship," he says.

Fig 1.1

Novel approach

 "Corporate Finance" also took a novel approach: it wove the no-arbitrage rule, known as "The Law of One Price," throughout the 31 chapters. Put simply, the Law of One Price says that in a competitive market, prices for identical products tend to converge - a point that has special relevance in today's increasingly global economy and with the greater transparency of prices in the Internet age. The Law also states that assets with equivalent cash flows must have the same value or price in the market.

"We wanted a book that looked at both theory and practice," says Mr. DeMarzo, 44. "Many students who use this book may have already worked at an investment bank, and students pay more attention if the material is connected to something they've seen in practice."

Fig 15.1For example, he says, the discounted free cash flow model of valuing stocks is closely related to the Law of One Price because economists can value a business by modelling the cash flows it will generate, given that a company's value is the cost of generating those cash flows in a competitive market.

Fits with MyFinanceLab

Another important factor in the book's rapid acceptance is its accompanying homework and tutorial program known as MyFinanceLab, one of about 40 disciplines covered by Pearson's MyLab series. The programs allow students to learn online at a home or school computer, and help them find the right answer to knotty problems.

"MyFinanceLab was important," says Mr. Bergstrom. "It was extremely well-received by the students."

In the U.S., University of Georgia student Joshua Chandler says he used MyFinanceLab several times a week.

"It helped a lot," he says. "Corporate finance is one of those courses, like accounting, that if you fall behind it's really hard because you can fall behind really fast. It held me accountable." Mr. Chandler, 20, says he drew on material learned from the textbook in a recent interview for a summer internship at an investment bank.

 "They asked me how I'd invest, when I'd make investments and what I'd look for in a company," he recalls. "So I used CAPM" - the acronym for the capital asset pricing model, covered in Chapter 12 of "Corporate Finance."

 "Some professors said, 'This is a first edition - we'll never move,' and then six months later they adopted the book," says Sylvia Edvinsson, a senior marketing manager at Pearson's office in Harlow, England, near London. The international success of "Corporate Finance" stemmed in part, she says, from word of mouth generated through sending the book to professors around the world for review in the pre-publication stage.

"In Benelux (Belgium, the Netherlands and Luxembourg) we've taken away as much as 50% of the targeted competitive situations, and that's unheard of for a first edition," says Mr. Leow. "There was a time when publishers focused on one market, such as the U.S. or U.K., and international sales were an afterthought. But times have changed."

To be sure, not every textbook is a candidate for a simultaneous international launch, particularly on subjects that are geared to a particular country or region such as history or languages. Subjects with a global language such as economics and business will work best, says Mr. Leow.

With "Corporate Finance," Pearson editors knew they were on to something when professors Berk and DeMarzo addressed a meeting of the Financial Management Association in October 2006, shortly after the book's publication, at the wood-panelled Grand America Hotel in Salt Lake City.

Pearson co-sponsored a cocktail reception, and had napkins printed up with a reproduction of the book cover, the authors' names, and a tagline announcing that Pearson "presents the New Canon in Finance."

"There was a huge amount of buzz," recalls Ms. Battista. "We had a booth, and people were swarming around the authors, stopping them and asking, 'Can I see the book?'"

Jonathan Berk  Peter DeMarzo

Some of the universities around the world that have chosen "Corporate Finance"

Aalborg Business School (Denmark)
Athens University of Economics & Business (Greece)
Bath University (U.K.)
Baylor University (U.S.)
City University, London (U.K.)
DePaul University (U.S.)
Erasmus University (Netherlands)
Gothenburg University (Sweden)
Harvard University (U.S.)
Helsinki University of Technology (Finland)
Indian School of Business (India)
Kuwait University (Kuwait)
Lund University (Sweden)
Marquette University (U.S.)
National Chengchi University (Taiwan)
Oxford University (U.K.)
Pennsylvania State University (U.S.)
Royal Holloway University (U.K.)
Stanford University
Stockholm School of Economics (Sweden)
Tilburg University (Netherlands)
University of Calgary (Canada)
University of Chicago (U.S.)
University of Georgia (U.S.)
University of California - Los Angeles (U.S.)
Vlerick Management School (Belgium)
Warsaw University (Poland)
York University (U.K.)