[BSc] Ec, PSc
Foundations of Finance
Much of human activity takes place within publicly-held corporations, i.e. for-profit organizations whose stock can be traded. This course examines the governance of such entities, i.e. the system of rules and processes through which they are managed and controlled. We start by overviewing 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.
Mode of Instruction
In the first six weeks, the sessions will consist of lectures, discussions, and case studies. The two sessions of Week 7 will be dedicated to student presentations of specific corporate governance issues.
Assessment: In-class participation
Learning aim: Interactive engagement with course material
Deadline: Ongoing Weeks 1 – 7
Assessment: Weekly homework assignments
Learning aim: Individual engagement with course readings
Deadline: Weeks 2-6 (Mondays at noon)
Learning aim: Applying knowledge gained in the course to a specific corporate governance issue
Deadline: Weeks 7 T.B.A.
Assessment: Final take-home exam
Learning aim: Understanding of course content
Deadline: Weeks 8 T.B.A.
The required text for the course is Ivo Welch’s “Corporate Finance” (second edition, 2011). This book is available on Amazon.com for $60 plus shipping (note that shipping to Europe can take several weeks). In addition, the author has made the book available to be read for free online from any computer or iPad with an internet connection: http://book.ivo-welch.info/ed2/ Reading 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/ed2/companion.pdf.
In addition, cases and articles will be made available to students either in hard copy or on Blackboard.
Week 1: An overview of corporate governance
Session 1 (29 October): Course introduction and key issues in corporate governance
Session 2 (31 October): Corporate governance and law, politics, and ethics
Week 2: Cost of capital and capital structure
Session 1 (5 November): Cost of capital
Session 2 (7 November): Capital structure
Week 3: Valuation
Session 1 (12 November): Company valuation
Session 2 (14 November): Corporate governance and firm value
Week 4: Changes in corporate control
Session 1 (19 November): Mergers and acquisitions
Session 2 (21 November): IPOs, going private transactions, restructuring
Week 4: Boards and shareholder activism
Session 1 (26 November): Board of directors
Session 2 (28 November): Shareholder activism
Week 6: Executive compensation and corporate governance regulation
Session 1 (3 December): Executive compensation
Session 2 (5 December): Corporate governance regulation
Week 7: Presentations
Session 1 (10 December) and Session 2 (12 December):
Each group will do a presentation on a particular corporate governance issue.
Preparation for first session
Read Welch, http://book.ivo-welch.info/ed2/companion.pdf, Chapters 25.A-25.C and be ready to discuss the reading in class.