• understand the concept of agency cost and be able to analyse, how agency issues are related to particular governance system
• identify the opportunities and the potential in use of private equity and to relate the use of private equity to potential governance challenges
• identify the crucial role of corporate laws in shaping the governance environment for individual companies
• analyse the opportunities and the barriers for non-controlling agents to affect the organisation of governance in companies, including the role of active individual shareholders, institutional investors and others
• analyse cases of corporate investment and takeovers and identify sources of value creation and issues of potential governance problems in individual cases
• identify the opportunities in various types of organisational structures, such as concentrated ownership, family companies and closely held corporations
• identify the opportunities and potential pitfalls in use of incentive based remuneration as a tool to motivate managers
• understand the special role of a corporate board in a modern organisation
• understand the elements of codes and conduct and be able to apply such codes to the context of individual companies

Corporate governance deals with how firms are organized and in particular with the relationship between owners, managers and other stakeholders in a corporation. The main objective of this course is to equip you with a knowledge base such that you are able to understand and participate in general decision making concerning governance activities in a corporation.

The format of the course is based on two elements:

Current academic literature: We will not use a textbook but a collection of academic papers that deal with specific issues of Corporate Governance, many of which have just been published in the recent years.

Student participation:You will actively participate in the class. In groups of two or three, you will be asked to present a paper and, if possible, discuss a current example from the business press for which the paper is relevant.

The course is a topic course, covering central issues in corporate governance. We begin with a general introduction to corporate governance from an agency perspective. After having identified generic agency problems, we then proceed to analyze specific corporate governance problems and a number of solutions to these problems. First, we spend three lectures on ownership issues and corporate governance issues associated with the most frequent class of firms, the family firm. Second, we will make ourselves familiar with the principal-agent framework. We will study a number of models that offer insights into the fundamental conflict of interest between managers and owners and its resolution. Next, we look at how well investors are protected through corporate laws and legal practice, and which effects Corporate Governance Codes of Conducts have on managerial behavior. Third, we discuss the firms’ internal control mechanisms focusing on incentives derived from compensation contracts, insider trading and boards. Fourth, we study further external governance mechanisms based on the take-over market, media attention, and reports by financial analysts. Finally, we discuss issues of corporate governance associated with the current financial crisis.

The research paper and case presentations are an integral part of the course and you must prepare them before class to facilitate the class discussion about the case topic.

Since this is a topic course, there does not exist one single course book covering the material in the course. Most of the required readings and three of the assigned cases will be included in a compendium,which can be bought from Samfundslitteratur bookstore, Solbjerg Plads 3, Ground floor. Some material may be uploaded on SiteScape.

Exercises:

Exercises will be devoted to student presentations. In the first week, we will create a list of groups and an overview over which topics each group will have to present. Notice, that group formation cannot be changed. Each student will present twice during the semester. You will be assigned an academic paper that deals with microeconomic theory or empirical evidence on a specific aspect of corporate governance. You will first present the essence of the paper (about 20 min.), and discuss its main results and implications. In the following part, you will relate the paper’s finding to an example from the current business press in order to explain a real-world phenomenon or to make predictions (10 min.). The remaining 15 min. will be saved for a class discussion. Presentation slides shall be sent to me no later than 12pm on the Monday before the day of presentation. I will upload the material on Sitescape for the other class participants.

Each group will have a reserved discussion space on Sitescape and it will be possible to some extent to discuss the cases with other students. The case answer shall include a front page with the name of the case, the number of the group and a list of group members who have participated in the case answer.

Handouts/Slides:

All lecture slides will be published on Sitescape before class. In the absence of a single course book, the lecture slides will provide the structure of the course. Remember that these are part of the required reading and can be part of the final exam.

Sitescape: Sitescape is an integrated part of this course. It will be the main discussion fora and channel of information and material distribution, including:

• Lecture slides
• Student presentations
• Discussion between students

Bebchuk. L.A., A. Cohen, and A. Ferrell (2008): What Matters in Corporate Governance?, Review of Economic Studies, 22, 783-827.

Bebchuk, L., A. Cohen and H. Spamann (2009): The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008. Harvard Law School Working Paper.

Bebchuk, L. and J.M. Fried (2003): Executive Compensation as an Agency Problem, Journal of Economic Perspectives, 17, 71-92.

Bertrand, M. and S. Mullainathan (2003): Enjoying the quiet life? Managerial behavior following anti-takeover legislation, Journal of Political Economy, 111, 1043-1075.

Bizjak, J., M. Lemmon, and R. Whitby (2009): Option backdating and board interlocks, Review of Financial Studies, 22, 4821-4847.

Boone, A., Field, L., Karpoff, J. and C. Raheja (2007): The determinants of corporate board size and composition: An empirical analysis, Journal of Financial Economics, 85, 65-101.

Core, J., W. Guay and D. Larcker (2008): The power of the pen and executive compensation, Journal of Financial Economics, 88, 1-25.

Demsetz, H. and K. Lehn (1985), The structure of corporate ownership: causes and consequences, Journal of Political Economy, 93, 1155-1177.

Djankov, S., R. La Porta, F. Lopez-de-Silanes and A. Shleifer (2008):The Law and Economics of Self-Dealing,Journal of Financial Economics, 88, 430-465.

Dyck, A., N. Volchkova, and L. Zingales (2008): The Corporate Governance Role of the Media: Evidence from Russia, Journal of Finance,63, 1093-1135.

Fahlenbrach and Stulz (2009): Bank CEO Incentives and the Credit Crisis. (SSRN Paper)

Farber, D. (2004): Restoring Trust After Fraud: Does Corporate Governance Matter? (SSRN Working Paper)

Fluck, Z. (1999): The dynamics of the management-shareholder conflict, Review of Financial Studies, 12, 379-404.

Gibbons, R. and K.J. Murphy (1992): Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence,Journal of Political Economy,100, 468-505.

Gompers, P.A., J.L. Ishii, and A. Metrick (2003): Corporate Governance and Equity Prices, Quarterly Journal of Economics, 118, 107-155.

Hall, B.J. and K.J. Murphy (2003): The Trouble with Stock Options, Journal of Economic Perspective, 17, 49-70.

Hermalin, B. and M. Weisbach (2003), Boards of directors as an endogeneously determined institution: A survey of the economic literature, Federal Reserve Bank of New York Economic Policy Review, 9, 7-26.

Holmström, B. (1999): Managerialincentive problems: A dynamic perspective, Review of Economic Studies, 66, 169-182.

Jensen, M. and W. Meckling (1976): Theory of the firm: managerial behaviour, agency costs, and ownership structure, Journal of Financial Economics, 3, 305-360.

Karpoff, J. (2001): Public vs. private incentives in Arctic exploration: The effect of incentives and organizational structure, Journal of Political Economy, 109, 38-78.

La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny (2000): Investor protection and corporate governance,Journal of Financial Economics, 58, 3-27.

La Porta, R., F. Lopez-de-Silanes, and A. Shleifer (1999): Corporate ownership around the world, Journal of Finance, 54, 471-517.

Larcker, D. and B. Tayan (2007): Executive Compensation at NaborsIndustries: Too Much, Too Little, or Just Right? (SSRN Paper)

Meulbroek, L. (1992): An empirical study of illegal insider trading, Journal of Finance, 47, 1661-1699.

Nenova, T. (2003): The value of corporate voting rights and control: A cross-country analysis, Journal of Financial Economics, 68, 325-351.

Noe, T. (1997): Insider Trading and the Problem of Corporate Agency, Journal of Law, Economics, & Organization,13,. 287-318.

Roulstone, D. (2003): The relation between insider trading restrictions and executive compensation, Journal of Accounting Research, 41, 525-551.

Shleifer, A. and R. Vishny (1997): A survey of Corporate Governance, Journal of Finance, 52, 737-783.

Tirole, J. (2001): Corporate Governance, Econometrica, 69, 1-35.

Yermack, D. (1995): Do corporations award CEO stock options effectively?, Journal of Financial Economics, 39, 237-269.

Brenner, S., Teaching Note “A simple principal-agent model”