Essentials of Corporate Arbitrage for the Financial Manager

This article is a primer on how profits are created in corporate finance and thus provides a justification for the role of corporate finance in practice. The key is to understand the role of corporate arbitrage. Corporations have a larger arbitrage opportunity set which allows the firm to arbitrage assets that individuals cannot. Furthermore, they can also create their own short position, which is a major constraint for individual and large investors. Thus, the firm serves a crucial role as an arbitrageur that is often overlooked by financial managers. Practicing managers and students alike should thus realize this role and utilize appropriate strategies to discover and exploit arbitrage opportunities to benefit not only their firm but the capital markets as a whole