Emerging Market Corporate Finance

Campbell R. Harvey,
Fuqua School of Business, Duke University, Durham, NC USA
National Bureau of Economic Research, Cambridge, MA USA

Spring Term 3, 2005

Course Description

This course explores the issues that are special to emerging economies. These economies are the engine of growth opportunities in the world economy. However, these markets are prone to crises (Latin America and Asia in the last decade) which reinforces the importance of measuring risk in these markets. The goal of this course is to develop a better understanding of how to do business in emerging markets.

This course should not be confused with my BA453 Global Asset Allocation and Stock Selection course. BA453 is a portfolio management course (investing in stocks, bonds and other liquid assets). BA456 is more about corporate finance and direct investment.

But BA456 is not just a corporate finance course. Indeed, one of the most important lessons of BA456 is that you have to look at more than finance in evaluating large scale projects in emerging markets. To be successful, we need to take into account insights from Political Science/Public Policy, Macroeconomics, Demography, Legal studies, Environmental, and Cultural studies. We explore projects from the point of view of the multinational corporation, the multilateral agency, the non-government organization, the host government, as well as the local population. While all of our cases have important finance content, we go well beyond textbook finance-oriented project evaluation.

The Fuqua Honor Code is maintained in this course.

Finally, to do well in this course, you must be willing to set aside time. Last year, students spent 10-11 hours outside of the class time.


There is one major requirement in this course. You will write a case. This will be 50% of your grade.

In most courses, you prepare a case. That is, you analyze a case that has already been written. While we do this too, in addition you will build a case from scratch.

It is critical that you begin work immediately on this project -- and best to start before classes begin. You need to form your groups now and scout out interesting case situations.

Since it is unlikely that you can make site visits, you need to make extensive use of the telephone, fax and email. That is, request (insist) that materials are sent from your target firm by express mail, fax, or electronically. In the past, students waited for weeks for materials to arrive by regular mail. Offer to pay for the express mail (ask my assistant for my FEDEX account number). In addition, you can submit to my assistant requests for telephone call reimbursements.

It is important that you consult with the international students in the class, in particular, those from emerging markets. They might have a number of interesting cases in mind.

I highly recommend that you diversify the geographical and language skills of your group.

Previous Cases Available

A history of the cases prepared for this course are available on the Case Index.

The case Telkom: South Africa was published in Emerging Markets Quarterly. It has also been used at a number of schools. It is also part of the in-house training of a premiere consulting house.

This case should provide a model for your preparation.


As soon as possible, I need the list of the members of your group. Ideally, if you could send me in HTML a replica of the format immediately linked below. The name and description of the case will be missing.

We need to meet as soon as possible. My assistant will coordinate times. It is also possible to more informally meet, say after class, -- just let me know. After your case is decided, I will require a word file with the preliminary description of the case. The file should have a logical name (which will likely by the subdirectory name where your content will reside), for example, Nestle_Overview.doc. The details must include, what you have done so far, and a schedule for completion of the case over the next three weeks. I will also need a short (three or four sentence description and title of the case for the project link page).

The groups and project links are found:

We will begin group presentations in the 11th lecture so you will need to be prepared to present by then. Groups presenting in the 11th lecture need to have information to the students by the 10th lecture.

This must be delivered by the 12th lecture. There should be six documents: (please use consistent file names) I would like both the source files (i.e. Word, Excel, Powerpoint) as well PDFs created for certain key files (see below).

  1. a one page cover letter that pitches the case, "Note to the Instructor" (i.e. why would this case be useful for MBA students to study), [e.g. Telkom_Letter.doc and Telkom_Letter.pdf]
  2. the case (make it look good), [e.g. Telkom_Case.doc and Telkom_Case.pdf]
  3. the solution (or teaching note), [e.g. Telkom_Solution.doc and Telkom_Solution.pdf]
  4. any supplementary materials (i.e. press clippings, prospectii, recent information on what happened, spreadsheets in Excel) [[e.g. Telkom_Exhibits.xls (no PDF necessary for XLS files); Telkom_Press.doc and Telkom_Press.pdf]
  5. a copy of the Powerpoint presentation that you will use in class and [e.g. Telkom_Presentation.ppt and Telkom_Presentation.pdf]
  6. an email from each group member detailing the percentage contributions of each member. The contribution should not just reflect the time devoted but the quality of the time. If you fail to send an email, I assume that your vote for the contributions is for equal.
Copy to G: drive, and into the subdirectory created for your case materials. They will be posted to a space in my web structure for future reference. Importantly, I am not looking for a regurgitation of old ideas or the popular press. I am looking for some innovative ideas supplemented with empirical analysis.

All students are expected to attend the presentations. You must email me if you cannot attend the presentations.

Case content

The only requirement that I have on content is that the case have some finance content. In particular, in part of the case, I would like to see a valuation, i.e. how much is a particular company worth. Use detailed financial statement information from Worldscope. Value using discounted cash flows as well as comparables. You may also use the International Finance Corporation data that is on-line or Datastream. In the discounted cash flow section, I want an analysis of the cost of capital. You will, in part, use my International Cost of Capital and Risk Calculator. More broadly, you can choose a situation that interests you (for example, the Asian crisis, the Latin American crisis, the Russian crisis, the recent crisis in Argentina, investment opportunities, early warning systems, risk assessment, market liberalization, the role of foreign currency, emerging market bonds, etc.) and how these interact with a particular firm or industry. It is even possible to revisit some previous case with a new angle.

Case publication

I plan to promote the most of the cases in the Financial Economics Network's Educator series. This electronic publication reaches thousands of practitioners and academics. When posting, my name will be appended as the final name on the case credits. [In finance, by the way, last name out of alphabetical order indicates the smallest contribution.] I will have more information on this during the term.

Outside Class Contact

This is my teaching term -- and I am generally available. Email is an efficient way to get me at odd hours, cam.harvey@duke.edu . If needed, call my assistant, Tara Bowens 660-7775 or email her at tbowens@duke.edu, to set up an office visit. I also don't mind taking cellular calls at 919-271-8156 (don't hesitate to call me at odd hours, if I am not available, I turn the telephone off).

Once you get the cases in full gear, all groups are required to schedule another office visit.

Video Clips

There are a number of video clips available for viewing off my site.


As I mentioned above, 50% of the grade is based on the case. You will have to turn in two of four HBS cases (20%), a valuation of a company (which I will distribute) (20%), and class participation (10%). You will also need to complete a group self evaluation. I will email you near the end of the course to remind you about this.


I reserve the copyright for all parts of the course. Any commercial reproduction of any course materials including lecture notes taken by students during the class is not allowed unless explicit permission is given by me.

Data resources

There are a number of data sources available in the Library. Worldscope through Disclosure Global Access, ISI Emerging Markets database (web product) and the EIU Country Reports. These databases are available in the library, all Fuqua computer labs and in faculty offices. I will also provide some data from the S\amp;P/International Finance Corporations' Emerging Markets Database CD-ROM. Datastream also has extensive emerging markets data.

Outline and Recommended Reading Assignments

Most of the reading for Business 456 will come from journal articles and working papers. Since many of the articles are from my own research, they are available in PDF form on my web page. Hence, I have no "reading pack". I will try to have a CD-ROM pressed for the class. There will be a fee for the reproduced Harvard cases.



Advice regarding cases

  1. Pick something with a powerful learning message.
  2. Don't choose something too big. For example, the privatization of the telephone sector in Brazil is way too big. Focus on something doable.
  3. Have a backup case as a contingency for information being promised to you and not arriving. That is, you should request all of the internal documents and get a paper flow going for two situations. Once, you have sufficient information from one of the topics, cut the other one.
  4. Do not underestimate the time committment to the case.
  5. Figure out the time committment of all of the group members in advance.

General background

1. Thursday January 20

Course overview - Country Risk Analysis and Project Evaluation

We start the session by setting the expectations for the course.

Next, we launch into the differing approaches to incorporate to measure the discount rate for direct investments. This involves translating the risk factors that one faces investing in emerging markets into a quantitative measure.

We end the session with some discussion of admissable countries for investment.

2. Monday January 24

The International Cost of Capital

The session continues the discussion on risk analysis and project evaluation. This week you should read both the Petrozuata and Mozal cases. Be prepared to contribute. While you may choose not to hand in the case, all students must have read the case. There are no particular directions for writing up the case (done on purpose to get you to prepare for your case). Choose an angle that you think is interesting and pursue it.

3. Thurday January 27 -- TENTATIVE Remote Class from World Economic Forum in Davos

Information, Agency, and Project Evaluation

This year I have been invited to participate in one of the sessions at the World Economic Forum. My plan is to be able to teach my Thursday classes from Davos. I will preview my presentation and draw lessons from the presentation for operating in emerging markets, project evaluation decisions and agency problems within large multinational corporations. This has been very difficult to arrange because of the demand of the conference for all the possible bandwidth for video conferencing facilities. Look for an email from me.

4. Monday January 31

Project Finance

We explore the Project Finance mechanism. The emphasis is on implementation examples.

5. Thursday February 3

Risk Mitigation Through Project Finance

We continue our analysis of Project Finance.

6. Monday February 7

Real Options In Project Evaluation

This session focusses on the case application.

7. Thursday February 10

Issues in Valuation

This lecture will focus on the results of the special, confidential, valuation. Each group needs to be ready to briefly present their views on the valuation of a particular company (assigned by me) and their views of the overall entity. All materials for this valuation will be distributed during the first week of class.

8. Monday February 14

Political Risk and Project Selection

This session is devoted to the Chad-Cameroon pipeline project and how political risk impacts project evaluation.

9. Thursday February 17

The NGO Perspective

You will likely have to deal with NGOs when engaging in direct investment in emerging markets. The goal of this session to take the perspective of the NGO to gain a better understanding of how they operate. The discussion will focus on the International Rivers Network and the Bujagali Dam Project.

10. Monday February 21

Emerging Markets Research Challenges in the Future

In this session, you will be exposed to some of my on-going research and my views of the most challenging issues for emerging markets corporate finance in the future. I will likely focus my attention on the role of the quality of institutions in emerging markets as well as the impact of financial liberalizations for both growth prospects and the volatility of growth.

11. Thursday February 24

Student Presentations

Four case presentations. Each has 20 minutes.

12. Monday February 28

Student Presentations

Four case presentations. Each has 20 minutes.