GRA 6542 Corporate Governance

GRA 6542 Corporate Governance

Course code: 
GRA 6542
Department: 
Finance
Credits: 
6
Course coordinator: 
Leon Bogdan Stacescu
Course name in Norwegian: 
Corporate Governance
Product category: 
Master
Portfolio: 
MSc in Finance
Semester: 
2023 Autumn
Active status: 
Active
Level of study: 
Master
Teaching language: 
English
Course type: 
One semester
Introduction

This course provides a broad overview of recent issues in corporate governance. It 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. We also discuss key empirical findings in corporate governance, as well as more detailed individual cases.

The course also addresses the most recent developments in regulations concerning corporate governance (e.g. corporate governance codes from various countries). It places particular emphasis on the stakeholder view of corporate governance, sustainability, corporate social responsibility, environmental, social and governance standards, and socially responsible investment. We also discuss the recent regulation concerning climate mitigation and adaptation, as well as recent developments on board diversity and the gender balance on boards.

The course will go beyond the usual analysis of listed firms with dispersed ownership and use examples of private firms, including family firms.

Learning outcomes - 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. They should be particularly aware of recent developments in corporate governance, such as the focus on sustainability and corporate social responsibility.

In particular, students should be aware of:

  • the competing views on corporate governance, including the shareholder focus versus the stakeholder view;
  • the importance of asymmetric information issues in corporate governance;
  • the main corporate governance conflicts (shareholders vs managers, majority vs minority shareholders, shareholders vs debt holders, shareholders vs other stakeholders in the firm) and the key mechanisms addressing those conflicts;
  • the concepts of corporate social responsibility and ethical investment;
  • the most recent developments regarding sustainable development, the EU "green deal", the EU taxonomy for sustainable investment, and ESG ratings;
  • special governance issues affecting private firms and in particular family firms.
Learning outcomes - Skills

A key learning outcome is to successfully use the theoretical and empirical insights gained during the course to reduce the value drain caused by weak governance.

By the end of the course, students should be able to:

  • identify and discuss specific governance issues in various real-life firms;
  • understand and discuss the roles and interests of various stakeholders in the firm;
  • understand and analyze important theoretical models in corporate governance;
  • interpret and discuss empirical findings in corporate governance;
  • understand and discuss the drivers of corporate governance regulations and the findings of the literature on "law and finance";
  • understand the importance of considering all stakeholders in the firm, and explain the sources of sustainability and diversity regulation;
  • use the broad overview of the stakeholder view of corporate governance and the knowledge of recent sustainability, diversity and governance regulations to update the strategies of real-life firms;
  • understand the "Nordic model of corporate governance" and discuss its advantages and challenges;
  • understand the role of institutional investors in the governance of the firms in their portfolio and in driving sustainability concerns;
  • understand the importance and economic role of special ownership types, such as family firms;
  • understand and analyze the implications of corporate governance issues for the valuation of firms and returns to investors in those firms.
General Competence

An important goal is to help students reflect on the financial and ethical implications of decisions made by firm insiders and outsiders. Those decisions can affect both individual wealth and social welfare.

By the end of the course, students should be able to predict and analyze potential issues that can affect the firm, its owners and other economic agents. They should also be able to discuss optimal governance solutions for various firms.

The examples and empirical results used in the course will cover a broad range of geographical areas, and we will also discuss regulations from many countries. Students should be able to understand and analyze governance practices in an international context.

Students should also have a general overview of recent developments concerning sustainable investment, nonfinancial reporting and ESG criteria, and be able to apply that knowledge to real-life situations. They should also be familiar with recent developments in corporate governance regulation, including rules about board diversity, and with the increasingly active governance role of institutional investors.

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? How do governance goals interact with the focus on diversification and cost minimization? What are the strategies available to institutional investors that want to take an active role in corporate governance?
  6. Board composition: Should boards be large or small, dominated by owners or managers, homogeneous or heterogeneous? What is the impact of recent regulations on board diversity, including mandatory gender balance quotas?
  7. Compensation: How does fixed pay vs. performance pay influence the corporate governance problem? Are CEOs paid excessively?
  8. Majority vs minority shareholders: What are the issues faced by minority shareholders when investing in firms controlled by large blockholders?
  9. 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?
  10. 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? What are the implications of increasing sustainability concerns, and of environmental, social and governance (ESG) ratings? What are the most recent developments for nonfinancial reporting, in particular reporting on sustainability issues? What is the impact of new "green" standards for firms and investors? How can "green" standards contribute to climate mitigation and adaptation? How do the "green" standards also include additional concerns, such as the protection of biodiversity and marine life, reducing inequality and protecting labour rights?
  11. 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?
  12. Family firms: What are the major governance problems for firms controlled by a family? How can they potentially affect firm performance? What are the special features of family firms, and how do they contribute to the economy? How do those features relate to sustainability and economic inequality concerns?
  13. 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? Why do many large corporations issue sustainability reports, and should we interpret the contents of those reports?
Teaching and learning activities

The instruction consists primarily of discussions of the readings assigned to the topics listed above. Each topic is assigned chapters from the textbook, theoretical and empirical articles, as well as real-life cases and examples. Exercises based on articles are associated with several topics. Students are expected to have read the material before each class meeting.

Class discussions are the focal point of the course. Students are strongly encouraged to get involved, and build an understanding of often complex corporate governance debates. There will be a particular emphasis on recent debates about sustainability, diversity and inequality. There will also be class discussions related to the group assignment.

The course also has guest speakers addressing the role of institutional investors in corporate governance, the role of family firms in the economy, as well as sustainability issues.

Group assignments will also be used to encourage team work and independent thinking on corporate governance topics. Students will be given real-life examples to analyze and discuss.

Software tools
No specified computer-based tools are required.
Additional information

The exam for this course has been changed starting academic year 2023/2024. The course now has two exam codes instead of one. It is not possible to retake the old version of the exam. Please note new exam codes in the Exam section of the course description. 

It is the student’s own responsibility to obtain any information provided in class.

Honour Code
Academic honesty and trust are important to all of us as individuals, and represent values that are encouraged and promoted by the honour code system. This is a most significant university tradition. Students are responsible for familiarizing themselves with the ideals of the honour code system, to which the faculty are also deeply committed. Any violation of the honour code will be dealt with in accordance with BI’s procedures for cheating. These issues are a serious matter to everyone associated with the programs at BI and are at the heart of the honour code and academic integrity. If you have any questions about your responsibilities under the honour code, please ask.

Qualifications

All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.

Disclaimer

Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.

Exam categoryWeightInvigilationDurationSupport materialsGroupingComment exam
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA 65422
Grading scale:
ECTS
Grading rules:
Internal examiner
Resit:
Examination when next scheduled course
30No 1 Semester(s)Group ( 2 - 3)Group write-ups based on given topics.
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA 65423
Grading scale:
ECTS
Grading rules:
Internal examiner
Resit:
Examination when next scheduled course
70Yes3 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
Individual Final written examination under supervision
Exams:
Exam category:Submission
Form of assessment:Written submission
Weight:30
Invigilation:No
Grouping (size):Group (2-3)
Support materials:
Duration: 1 Semester(s)
Comment:Group write-ups based on given topics.
Exam code:GRA 65422
Grading scale:ECTS
Resit:Examination when next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:70
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
Duration:3 Hour(s)
Comment:Final written examination under supervision
Exam code:GRA 65423
Grading scale:ECTS
Resit:Examination when next scheduled course
Type of Assessment: 
Ordinary examination
All exams must be passed to get a grade in this course.
Total weight: 
100
Sum workload: 
0

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.