Corporate Governance

Introduction

Please note that this is a preliminary course description. The final version will be published in June 2027.

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 goals, corporate social responsibility, environmental, social and governance standards, and socially responsible investment. We also discuss the recent regulation concerning climate change mitigation and adaptation, as well as recent developments on board diversity and the gender balance on boards.

The course goes beyond the usual analysis of listed firms with dispersed ownership and uses examples of private firms, including family firms.

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? How did our understanding of corporate governance evolve over time?
2. How can we use game theory to represent and analyze corporate governance issues? Examples of coordination and principal-agent problems in corporate governance.
3. 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?
4. 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? How can owners enhance their control over the firm, and how can that affect the relationship between majority and minority shareholders? What do we know about ownership concentration, ownership duration and types of owners and their impact on firm value? Can firms survive without owners? How does the ownership structure interact with the firm's Corporate Social Responsibility (CSR)?
5. 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?
6. 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?
7. Private equity and venture capital ownership: What is the competitive advantage of private equity and venture capital as active owners? What is the impact of PE/VC ownership on firm value, and how is the effect on firm value distributed between general partners, limited partners, creditors, and other stakeholders in the firm?
8. Board composition: What is the role of corporate boards of directors? Who chooses the directors, and what are their duties to the firm and shareholders? 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?
9. Compensation: How can management compensation reduce potential conflicts between shareholders and managers? How does fixed pay vs. performance pay influence the corporate governance problem? Are CEOs paid excessively? Have CEO compensation packages become too complex?
10. Mergers and acquisitions: What is the “market for corporate control”? How can it reduce corporate governance problems? What are takeover defenses, and why are they popular? What are the incentives behind managerial empire building? What is the conglomerate discount? What is the existing evidence on the value created by mergers and acquisitions?
11. Majority vs minority shareholders: What are the issues faced by minority shareholders when investing in firms controlled by large blockholders? What is the evidence that controlling shareholders can extract private benefits from the firm? How can potential conflicts between majority and minority shareholders be prevented or mitigated?
12. 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? How can underinvestment, risk shifting, short termism, delayed liquidation impact firm value?
13. 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? What is the relationship between current sustainability concerns and more traditional stakeholder issues, such as the relationship between the firms and its employees?
14. Corporate governance and sustainability regulation: How important are rules protecting investors for firm value, governance and the development of financial markets? How did corporate governance regulation evolve over time? 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? What is the relationship between established corporate governance regulation and the new sustainability regulation and reporting requirements? How do both of them relate to basic financial regulation? What are the distinctive features of the Nordic model of corporate governance?
15. 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?
16. 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?