1. According to Modigliani and Miller (1961), dividend policy is irrelevant in perfect capital markets. Discuss and present an example which gives support to this argument.

2. 2.1 Describe and discuss the main criteria used by ratings agencies such as Moody's and Standard and Poor's in order to construct credit ratings.

2.2 Typically, ratings are evaluated in a static order probit setting. Explain the shortcomings of this method and suggest an alternative way of modelling ratings.

3. According to Fazzari, Hubbard, and Petersen (1988), it is the most financially constrainedfirms which display the highest sensitivity of investment to cash flow. According to Kaplan andZingales (1997), it is the financially healthiest firms whose investment is most  sensitive tofinancial variables. Explain the arguments of the above mentioned studies and critically evaluate whether these two apparently contradictory findings can be reconciled.

4. a. Present the motives for mergers and the different types of takeovers. Discuss the distinction between friendly and hostile takeovers. Further, describe the defense tactics and the ways in which target managers resist takeovers.

b. What is the process of a hostile takeover? Present a relevant example.

5. Can investment cash-flow sensitivities be considered as appropriate indicatorsof the level of financing constraints faced by firms?

6. Describe and compare the empirical performance of banking relationships in assessing theeffects of credit on firms' employment decisions.