Corporate Governance

ECO420 Corporate Governance

Autumn 2023

Spring 2024
  • Topics

    Corporate governance ('eierstyring' in Norwegian) refers to the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. That is, how do investors (shareholders or lenders) make sure that the managers of the corporation do not waste the funds invested? Corporate governance centers on how investors ensure that managers have the right incentives.

    (This course does not address the question of how managers ensure that other employees have the right incentives. That question is instead covered in courses on management control and organizational economics.)

    For investors to be willing to provide financing for a firm, mechanisms protecting their interests must be in place. Such mechanisms can involve incentive contracts for company executives, legal protection of owner rights, ownership concentration and voting power, membership on the corporate board, or the discipline of product market competition. The purpose of this course is to get a thorough understanding of how these mechanisms work in theory and in practice.

    The course has three main components:

    1. Current debates and major topics in corporate governance . Readings for this component are newspaper articles and non-technical overviews. Some possible topics are:

    • Executive pay. Are CEOs paid too much?
    • Institutional ownership. Are mutual funds good for corporate governance?
    • Law and corporate governance. Norwegian and US corporation law.
    • The Norwegian state and the Norwegian oil fund as owners of companies.

    2. Microeconomic models of asymmetric information in the relationship between investors and management in a firm. In this part we closely follow selected chapters / sections from the textbook The Theory of Corporate Finance by Jean Tirole. The main topics here are:

    • Outside financing capacity
    • Corporate financing with adverse selection
    • Monitoring
    • Investor activism
    • Control rights
    • Takeovers

    3. Empirical analysis of a few key issues in corporate governance. Here we will read a few academic research papers. Some possible topics are:

    • Bank CEO incentives and the financial crisis
    • Corporate governance and product-market competition
    • Common ownership, product-market competition and CEO incentives

  • Learning outcome

    After completing the course, students will be familiar with the main issues in current debates about corporate governance. They will be familiar with central theoretical and empirical approaches to understanding corporate governance. The course provides a solid background that will allow them to discuss and evaluate corporate governance issues in a professional context.

    After completing the course, students


    • know the main features of the corporate governance framework within which all modern corporations operate, and why this framework is the way it is
    • know the main current debates in corporate governance
    • know the main challenges in corporate governance
    • know the main mechanisms used to resolve corporate governance incentive problems


    • Are able come up with ideas for how corporate governance questions can be studied with a theory model
    • Are able come up with ideas for how corporate governance questions can be studied with an empirical model
    • Are able to interpret results from theoretical and empirical studies on corporate governance questions


    • Are able to discuss issues in corporate governance with confidence, based on a broad knowledge of empirical and theoretical approaches as well as substantive issues
    • Are able to see why corporate financing takes the forms that it does
    • Are able to identify subtle incentive problems, and possible remedies, in investor-manager relationships
    • Are able to reflect in an informed and independent way about corporate governance, and more generally about the role of corporations in society

  • Teaching


    Lectures with some student activities (doing simple problems, discussion). Lectures will not be streamed or recorded.

  • Recommended prerequisites

    The course assumes the possession of or at least willingness to acquire some analytic skills in using and interpreting formal economic models. Knowledge corresponding to ECO400 or ECO401 is useful, but not necessary.

    For the empirical part of the course, knowledge of linear regression, for instance from BUS444N, BUS444E, ECN402 or FIE401 is recommended. Taking one of these courses in parallel with ECO420 would work very well.

  • Credit reduction due to overlap


  • Compulsory Activity

    Participation in compulsory student-lead activities and compulsory written group assignments.

    The exact number and nature of the compulsory activities/assignments will be announced at the start of the semester, but most likely it will be 3-5 in total. They will involve a combination of the following:

    • Debates between two student groups on a given topic, where the two teams commit to argue for opposite views on the topic.
    • Group presentations
    • Written group assignments

  • Assessment

    3 hour written individual school exam (in English).

  • Grading Scale

    A - F.

  • Computer tools


  • Literature


    Tirole: The Theory of Corporate Finance, Princeton University Press, 2006

    A list of articles.

  • Permitted Support Material

    One bilingual dictionary (Category I)


    All in accordance with Supplementary provisions to the Regulations for Full-time Study Programmes at the Norwegian School of Economics Ch.4 Permitted support material


ECTS Credits
Teaching language

Spring. Offered Spring 2023.

Course responsible

Associate Professor Øyvind Thomassen, Department of Business and Management Science.