[BSc], GED, ID, PSc, Ec
A similar-tagged 200-level courses, ideally Foundations of Finance.
Firms are the economic engine of the global economy and affect everyone’s daily life. Their decisions on the firm structure and governance can create or destroy enormous (social) value. Therefore, it is in the interest of the society that all stakeholders, especially regulators and investors to understand the principle of corporate governance. This course examines the governance of the most influential firms—publicly listed firms, in particular the system of rules and processes through which they are managed and controlled. We start by viewing conflicts of interest among corporate stakeholders and interactions between corporate governance and law, politics, and ethics. We then discuss cost of capital, capital structure and valuation of firms, and use these as a springboard to discuss changes in corporate control (mergers and acquisitions, initial public offerings, going-private transactions, and restructuring). Subsequent topics include board of directors; shareholder activism; executive compensation; and corporate governance regulation. The course concludes with student presentations of a specific corporate governance topic.
The course will use the prism of corporate finance to provide insights into the theory and practice of corporate governance. Specifically, students will gain an understanding of:
The scope of the field of corporate governance and the nature of relationships between managers, stakeholders, regulators and the public that it addresses;
Company valuation and how it is affected by corporate governance;
Different kinds of changes in corporate control;
Key considerations in hot topics in corporate governance, such as board composition and performance, shareholder activism, executive compensation, and corporate governance regulation.
Course Learning Outcomes
After completing the course, the student should be able to:
Demonstrate a critical understanding of central conflicts of interest in corporate governance and ways of addressing them, namely
- Conflicts of interest between majority and minority shareholders
- Conflicts of interest between shareholders and managers
- Conflicts of interest between shareholders and other stakeholders
Use annual reports, financial statements and business cases to gain insight into causes and consequences of corporate governance-related problems and events.
Analyze the impact of corporate governance-related attributes on a company’s operations and its value.
Analyze the role of governance in corporate reorganizations, and the impact of a reorganization on the firm’s governance.
Assess the characteristics and performance of a board of directors in light of the firm’s objectives.
Evaluate tradeoffs inherent in shareholders’ (non)activism and the design of executive compensation.
Critique corporate governance-related regulation.
Conduct and communicate a critical review of a topic in corporate governance.
Mode of Instruction
Every week there will be two times interactive lectures of two hours each in order to comment on the key concepts exercises and reading material of the week. In addition, relevant news and topics will also be discussed during class.
The students are expected:
To prepare for class by reading the assigned materials and doing the weekly exercises.
To participate actively in classes
To work closely in teams (up to 4 people) both on their presentation and report.
The grade for in-class participation (15%) will reflect the student’s contribution to class discussion throughout the course: thoughtfully relating course readings to news events, asking and answering pertinent questions, and overall engagement during class.
There will be five weekly homework assignments (30%), each representing 6% of the overall course grade. These could take the form of a mini-research project, a critical essay, or analysis of a business case. You must be ready to discuss your work during class.
Each student will be required to give a report and a presentation (30%), as part of a group (max. 4 members), during the final two sessions of the course. The presentation will be the outcome of your in-depth investigation of a specific corporate governance topic, and should last approximately 15 minutes. Each presenter must distribute to all the class participants one week in advance, in scanned or hard copy form, a 5-10 page report reading directly relevant to its presentation. The presentation and report should:
Provide an overview of the issue, key players at hand, back ground information and key development
Analyze the interest of key players, why they have chosen certain course of action and what the impacts are
Point out the implications for the case and what we can learn from it.
The final take-home exam (25%) will take place in Week 8. The exam will consist of both numerical and essay questions.
Ivo Welch (2013). Corporate Finance. 3rd edition.
Free online version: http://book.ivo-welch.info/ed3/toc.html
Or buy directly buy the book from http://book.ivo-welch.info/ed3/ for $60. Please take into account of extra shipping cost and time.
Readings will be drawn from Parts IV, V, and VI of the book, as well from Chapters 24 and 25 of the online PDF companion to the book, http://book.ivo-welch.info/ed3/companion.pdf.
Niall Ferguson (2009). The Ascent of Money. Penguin Books.
This book also has an in-depth companying documentary available on YouTube.
In addition, business cases, research articles, and official reports will be made available to students on Blackboard.
Recommended readings and other resources:
Film: The Firm (1993)
Film: Barbarians at the Gate (1993)
Film: Margin Call (2011)
BBC documentary The Last Days of Lehman Brothers (2009)
Jonathan Berk and Peter Demarzo (2014). Corporate Finance. 3rd edition. Pearson