1. A primer on corporate governance
This project is targeted for economists, who are often unfamiliar with corporate governance issues in both micro- and macroeconomic settings. The paper outlines the sources of corporate governance problems, describes their manifestations in terms of observable behavior in weakly governed firms, and discusses the corporate governance mechanisms which can be used to reduce these agency problems. The paper also surveys the research findings from Norwegian listed firms regarding their ownership structure, the relationship between ownership structure and performance, and the economics of long-term vs. short-term ownership. The paper (in Norwegian) was published in Økonomisk Forum in 2005.
2. The economics of minority stockholder protection in Norwegian courts
Norwegian corporate law rules that when one investor holds more than 90% of the firm’s equity, this majority owner has the right to buy out the minority. If at least one minority owner rejects the price offered by the majority, the case ends up in court. Thus, the function of the court is to value the minority shares. Studying all the 63 minority buyout cases handled by Norwegian courts since the law was passed in 1976 until the first Supreme Court ruling in 2003 (Norway Seafoods), this project analyzes how the court has acted as a financial economist when valuing the minority shares. The paper presents descriptive statistics on the duration of such majority-minority conflicts, the out-of-pocket costs in court, how the parties choose valuation methods, how costs of capital are estimated, and the relationship between the minority share’s value set by the courts and the price offered by the majority. The paper (in Norwegian) was published in Tidsskrift for Rettsvitenskap in 2005. This project is related to project 3 under Ongoing projects.
3. Managing earnings with intercorporate investments
This project explores to what extent Norwegian firms deliberately manage their financial reports by exploiting the flexibility of generally accepted accounting principles. Using a sample of Oslo Stock Exchange-listed firms with 20-50% ownership stakes in other firms, the study finds that owning firms with high financial leverage tend to maximize reported earnings from these investments through their choice between the cost method and the equity method. This may happen because managers try to reduce debt renegotiation costs or to avoid regulatory attention. In contrast, managers do not systematically bias reported earnings to extract private benefits or to signal revised expectations about future cash flows. Firms use different earnings management tools in a consistent way, as the earnings effect of the cost/equity choice is not offset by their use of discretionary accruals. This paper is published in the Journal of Business Finance and Accounting 33, 2006, pp. 671-695
