AU Summer University Course Description. Title of the course: Corporate Governance. Teaching dates: July 2 July 22, 2015

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1 AU Summer University Course Description Title of the course: Corporate Governance Teaching dates: July 2 July 22, 2015 Teaching time: Monday Friday 9:00 13:00 Exam date: July 30, 2015 Name of the lecturer: Dr. Tatyana Sokolyk Aim of the course: The main goal of the course is to develop an understanding of key corporate governance mechanisms and practices and their effects on firm value and economic development. Main issues Corporate governance deals with how the suppliers of capital ensure that corporate managers make efficient use of that capital and provide investors with a return commensurate with the risk of the investment. Better governance lowers the cost of capital and leads to greater financial development and higher economic growth. Consequently, countries are searching for the set of governance practices, rules and regulations that will most effectively promote economic development. This course will study the main corporate governance mechanisms, such as, legal and regulatory protection, the market for corporate control, ownership structure, executive compensation policies and practices, the board of directors, and shareholder activism. We will analyze how corporate governance practices differ across countries and how they affect firm value and the development of capital markets. Forms of instruction Classroom instruction Comments on form of instruction The class meetings will be conducted in a seminar format. Each class meeting, we will discuss assigned academic articles. Students will be randomly assigned to a study group, and each group will be responsible for leading the discussion of two articles during the summer term. It is highly recommended that groups prepare PowerPoint slides and/or hard-copy hand-outs for distribution to the rest of the class. Each of these leadership roles will account for 20% of the student s final grade. The performance of each student will be evaluated individually. Students, who are not responsible for leading the discussion of a given article, should prepare a one page of key points and ideas for future research for each article discussed that day, except for articles where the student s group is leading class discussion. This work has to be done individually. Each assignment will be graded on a seven-point scale, and together they will account for 20% of the student s course grade. I will drop two lowest grades and will not include them in final grade calculations. Before discussing the articles, we will begin each class by reviewing what has happened in the real world of corporate finance, with specific references to stories covered in the Wall Street Journal 1

2 and Financial Times. We will analyze how these stories relate to corporate governance. The purpose of these discussions is to apply the current theories about corporate governance to realworld situations, to identify specific corporate governance problems in countries and organizations, and to develop suggested solutions to those problems. In some sessions, we will devote a large portion of class time to discussing current issues and practices. The concepts and issues analyzed during these discussions will also be part of the final exam. Academic prerequisites Master students with a relevant bachelor within business studies Learning outcome and objectives The two main objectives of the course are: i) to provide an understanding of a corporate governance concept and corporate governance mechanisms and how they affect a firm s value and a country s financial development, and ii) to familiarize students with different corporate governance structures and to explain observed differences in financial development across countries. Upon successful completion of this course, it is expected that the student will be able to: i) define corporate governance and explain why it is important, ii) demonstrate the knowledge of different governance mechanisms and explain how they interact, iii) explain how corporate governance differs across countries, iv) explain and apply the current theories about corporate governance to real-world situations, v) identify corporate governance problems in organizations, suggest and evaluate solutions to those problems. Exam The final exam will be comprehensive and concepts and issues analyzed during class discussions will also be part part of the final exam, which has to be completed individually. The grade received on the final exam will consitutute the remaining 60% of the course grade. Course materials The course materials will include reading assignments listed below. All reading assignments are compulsory. Students are responsible for reading the assignments prior to coming to class. Articles that will be assigned for group presentations are indicated in bold; other articles will be presented by the instructor. Other course materials, such as lecture slides and handouts, will be posted on the course website. Time schedule WEEK 1 July 2 Introduction and Overview of Corporate Governance Shleifer, A., Vishny, R A survey of corporate governance. The Journal of Finance 52, Gillan, S Recent developments in corporate governance: An overview. Journal of Corporate Finance 12,

3 July 3 Agency Costs and Ownership Structure Jensen, M., Meckling, W Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, Anecdotal evidence of managerial entrenchment Assignment: Find some stories or episodes of managerial entrenchment in current/recent business news and other media sources. Be ready to share and discuss your findings in class. WEEK 2 July 6 Executive Compensation Core, J., Guay, W., Larcker, D Executive equity compensation and incentives: A survey. Economic Policy Review 9, (Group Jensen, M.C., Murphy, K.J Performance pay and top-management incentives, Journal of Political Economy 98, (Group July 7 Executive Compensation (continued) Core, J., Holthausen, R.W., Larcker, D Corporate governance, Chief Executive Compensation, and firm performance. Journal of Financial Economics 51, (Group CEO employment contracts: Incentive or entrenchment? July 8 Large Block Holders Holderness, C A survey of blockholders and corporate control. Economic Policy Review 9, (Group Claessens, S., Djankov, S., Fan, J., Lang, L Disentangling the incentive and entrenchment effects of large shareholdings. The Journal of Finance 57, (Group July 9 International Corporate Governance Denis, D., McConnell, J International corporate governance. Journal of Financial & Quantitative Analysis 36, (Group Doidge, C. Karolyi, G. & R. Stulz Why do countries matter so much for corporate governance? Journal of Financial Economics 86, (Group 3

4 July 10 Law and Finance La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R Law and finance. Journal of Political Economy 106, (Group La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R Legal determinants of external finance. The Journal of Finance 52, (Group WEEK 3 July 13 The Board of Directors Hermalin, B.E., Weisbach, M.S Endogenously chosen boards of directors and their monitoring of the CEO, The American Economic Review 88, Corporate governance reforms: Boards of directors July 14 The Board of Directors (continued) Fich, E., Shivdasani, A Are busy boards effective monitors? The Journal of Finance 61, (Group Bebchuk, L., Cohen, A The cost of entrenched boards. Journal of Financial Economics 78, (Group July 15 The Market for Corporate Control and CEO Turnover Dyck, A., Zingales, L Private benefits of control: An international comparison. The Journal of Finance 59, (Group Huson M., Parrino R., Starks L Internal monitoring mechanisms and CEO turnover: A long-term perspective. The Journal of Finance 56, (Group July 16 Shareholder Activism Mulherin, J.H., Poulsen, A.B Proxy contests and corporate change: implications for shareholder wealth, Journal of Financial Economics 47, (Group Gillan, S.L., Starks, L.T., Corporate governance proposals and shareholder activism: the role of institutional investors, Journal of Financial Economics 57, (Group 4

5 July 17 Reading day No class WEEK 4 July 20 Family Firms Maury, B., Family ownership and firm performance: Empirical evidence from Western European corporations. Journal of Corporate Finance 12, July 21 Corporate Governance Reforms around the World Assignment: Find information about a corporate governance reform from news or other media sources over the last 5-10 years. What were the objectives of the reform? What areas of corporate governance did the reform target? How effective was the reform? Be ready to share and discuss your findings and thoughts in class. July 22 Course Overview Bebchuk, L., Weisback, M The State of Corporate Governance Research, Review of Financial Studies 23,