This lesson establishes the foundational principles of corporate finance, the objectives of the finance function, and how corporate finance supports the organisation’s strategic goals. The ACT syllabus defines the scope of corporate finance and its role in creating value within an organisation .

1.1 Defining Corporate Finance

Corporate finance is the area of finance dealing with the sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to shareholders, and the tools and analysis used to allocate financial resources . It addresses two key questions: What investments should the company make? And how should it pay for those investments? 

1.2 Corporate Objectives and Shareholder Value

The primary objective of corporate finance is to maximise shareholder value. This principle is grounded in the belief that a company’s primary duty is to its owners—the shareholders . The concept of shareholder value is measured through various metrics, including shareholder value analysis and Total Shareholder Returns (TSR) . There is a fundamental risk/return dynamic at the heart of corporate finance: to generate higher returns, an organisation must generally accept higher levels of risk. The role of corporate finance is to manage this trade-off to optimise value for shareholders .

1.3 Agency Theory and Governance

A key consideration in corporate finance is the agency problem—the conflict of interest between shareholders (principals) and management (agents). Managers may pursue their own interests at the expense of shareholder value . Corporate governance mechanisms, including board oversight, executive compensation structures, and market discipline, are designed to align the interests of management with those of shareholders. The Dublin City University (DCU) module on Corporate Finance requires students to “Appraise the strategic objectives and decision framework of corporate finance, subject to the maximisation of shareholder wealth and subject to agency theory and with an emphasis to Sustainability and ESG” .

1.4 The Role of Treasury in Corporate Finance

The treasury function plays a critical role in supporting corporate finance objectives. The ACT’s DipTM syllabus states that upon completion of Unit 1, candidates will be able to “evaluate the importance of appropriate governance structures and stakeholder management for treasury and the wider business, recommending optimal capital structures and examining the use of equity markets as a source of capital and the importance of managing shareholders” . Treasury professionals must understand the corporate finance function’s objectives and how their work in liquidity management, funding, and risk management supports the creation of shareholder value.