GED, ID, PSc, Ec
Foundations of Finance, Quantitative Research Methods.
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.
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 a) conflicts of interest between shareholders and managers, b) conflict of interest between shareholders and creditors, and c) conflicts of interest between shareholders and other stakeholders
- 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.
- Discuss the market for ownership control, namely mergers and acquisitions, leveraged buyouts and hostile takeover threats as external mechanisms for corporate governance.
- Understand how corporate governance-related regulations affect incentives and could achieve more (or sometimes less) desired social outcome.
Once available, timetables will be published here.
Mode of instruction
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 four weekly debates and one news briefing (20%). Debates and news briefing will take place on Thursdays. Debates will take up to 20 minutes each week. During the debate weeks, you need to submit arguments for both sides of the debates on Wednesdays before 12:00 and submit a summary of the debates and insights gained on Fridays before 12:00. Teams take turns in doing news briefing. Each week, the responsible team will pick up corporate governance related news from the Financial Times and discuss for 5-10 minutes 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 exam (35%) will take place in Week 8. The exam will consist of both multiple options and essay questions.
There will be a Blackboard site available for this course. Students will be enrolled at least one week before the start of classes.
- 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 Part V, 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.
- Chosen list of academic literatures on corporate governance (on Blackboard)
- Aswath Damodaran Applied Corporate Finance. 3rd edition
Free online version:
- Charles Wheelan (2010). Naked Economics: understanding the dismal science
- Film: The Firm (1993)
- Film: Barbarians at the Gate (1993)
- Film: Enron, the smartest guy in the room (2005)
- Film: Margin Call (2011)
- BBC documentary The love of money (2009)
- Joris Luyendijk (2015). Dit kan niet waar zijn: onder bankiers
- http://tegenlicht.vpro.nl/afleveringen/2014-2015/bankgeheimen-joris-luyendijk.html (Dutch)
This course is open to LUC students and LUC exchange students. Registration is coordinated by the Curriculum Coordinator. Interested non-LUC students should contact firstname.lastname@example.org.