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