Course description

Corporate Governance


This course addresses the situation where the firm’s stakeholders (such as its owners, creditors, management, employees, and society at large) disagree on how to use the firm’'s resources. The potential conflicts of interest between stakeholders create a corporate governance problem and can produce welfare losses for the firm and for society as a whole. We will primarily study the corporate governance problem in terms of principal-agent relationships between the owners, the creditors, the board, the management team and other stakeholders. We revise theoretical models about corporate governance and examine the ways in which they can be tested using available data. Empirical findings on corporate governance problems and their solutions in various parts of the world will be an important part of the course. We use this empirical focus both to motivate the real-world relevance of corporate governance and to help the student see the link between theory and practice.

Course content

  1. The corporate governance problem: What is it, where does it come from and how serious is it? How do firms convey information to outsiders - and why do we still have asymmetric information issues in spite of that? What is the link between corporate governance and corporate finance?
  2. Endogeneity issues in the study of corporate governance issues. How do we measure the effect of corporate governance - and how do we make sure the relationship is causal?
  3. Ownership structure: Does it matter if owners are small or large, whether they are individuals or institutions, and whether they are long-term or short-term? Why are large owners both a problem and a blessing for small owners and vice versa? Can firms survive without owners? How does the ownership structure interact with the firm's Corporate Social Responsibility (CSR)?
  4. The market for corporate control: : Do takeover threats reduce the corporate governance problem? Do mergers reduce agency costs, or are they just driven by them?
  5. Fund activism: Do private equity funds, mutual funds, hedge funds, and pension funds influence the governance of the firms they invest in, or are they too small and incompetent to matter?
  6. Board composition: Should boards be large or small, dominated by owners or managers, homogenous or heterogenous?
  7. Compensation: How does fixed pay vs. performance pay influence the corporate governance problem? Are CEOs paid excessively?
  8. Owners and creditors: How can owners hurt the creditors’ best interests? What will creditors do to prevent this from happening? Who pays for this agency problem?
  9. Shareholders vs. stakeholders: Should the company focus narrowly on "shareholder value" or should other stakeholders also be explicitly considered? How important are corporate social responsibility and socially responsible investing?
  10. Private firms: How does the nature of the corporate governance problem differ between public (listed) and private (nonlisted) firms? Why do firms choose to stay private rather than go public?
  11. Family firms: What is the major governance problem for firms controlled by a family?
  12. Regulation: Should politicians interfere with corporate governance? For instance, does it make sense to have the Norwegian system of mandating at least 40% of each gender in the boardroom, and to ensure that 1/3 of the directors are employees? Why have more than 50 stock exchanges around the world issued recommendations for how to execute corporate governance?

Learning outcome knowledge

The major objective of the course is to train the student in understanding what a corporate governance problem is, how it can be discovered, how serious it is, and how it can be handled. Students should become familiar with the main theoretical insights and the empirical evidence concerning corporate governance issues.

Exam organisation

  • Written assignment: 20%
  • Written exam: 20%
  • Written exam: 60%