IB912-15 Corporate Governance and Financial Reporting
Introductory description
The aim of the module is to discuss the position of governance in corporate contracting and how it helps align the actions of managers with the interests of shareholders.
Module aims
The aim of the module is to discuss the position of governance in corporate contracting and how it helps align the actions of managers with the interests of shareholders. The main focus will be on a number of corporate governance mechanisms and practices (e.g., board of directors, executive compensation, institutional shareholders). Additionally, it aims to examine the importance of debt contracting and the associated information asymmetries between borrowers and lenders for firm-decision making. The module will pay specific attention on how the corporate information environment plays a central role in the design of such mechanisms and the importance of financial accounting information within this context. The main objective of the module is to help students understand the theoretical underpinnings of Corporate Governance and how it is designed to mitigate agency conflicts between managers and shareholders. Information asymmetry is the main reason behind such conflicts; the module aims to show how firms choose to design their Corporate Governance mechanisms to resolve such conflicts and how financial reporting also helps mitigate such information asymmetries. A central question that the module will aim to answer is whether certain governance structures are unconditionally “good” or “bad” or can be driven by certain business environments. The module also aims to tie together theoretical structures and their empirical testing, thus giving the students an understanding of how different corporate governance phenomena can be explained by academic research.
Outline syllabus
This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.
The module will include some or all of the following topics:
The position of Corporate Governance within corporate contracting
Corporate Governance and Financial Reporting
Does “good” Governance really exist?
Understand the reasons why Corporate Governance systems are different across countries
The role of the board of directors, its responsibilities and its importance for firm decision-making
Board structure, its determinants and its consequences for the firm
The importance of information transparency for board structure and different mechanisms for improving it
Purposes, Components and International Differences in Executive Pay
The design of Executive Pay PackagesShort-term and Long-term Incentives and the notion of “Inside Debt”
Stock Options and Firm Risk
The Use of Performance Measures for evaluating managers
The use of accounting information for assessing managerial performance
Pay Incentives and Earnings Management
The role of Compensation Consultants for Executive PayInstitutional investors and their importance for firm-decision making and corporate governance
The theories of “voice” and “exit” on the role of Institutional investors for corporate governance
Institutional investors and informational transparency
The importance of investor horizons for corporate governance
The importance of shareholder voting for corporate governance (including Say-on-Pay)
Debt contracting, information asymmetries between borrowers and lenders and their importance for firm-decision making
Learning outcomes
By the end of the module, students should be able to:
- Demonstrate a deep understanding of the position of governance and debt in corporate contracting, how it helps align the actions of managers with the interests of shareholders and debtholders and reduce information asymmetry.
- Critically discuss and appreciate the importance of the corporate information environment for the design of corporate governance mechanisms and the importance of financial accounting information within this context.
- Demonstrate the ability to appreciate how firms choose to design their Corporate Governance mechanisms to resolve agency conflicts and how financial reporting also helps mitigate such information asymmetries.
- Demonstrate a deep understanding of how different corporate governance phenomena can be explained by academic research.
- Critically evaluate the structure and form of different corporate governance and contracting mechanisms.
- Evaluate the governance structures of specific firms.
- Debate on "sensitive" issues, such as excessive executive pay.
Indicative reading list
The delivery of the module will be mainly based on a number of academic papers, combined with a textbook. Textbook
Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences, 2nd Edition, By David Larcker, Brian Tayan, Pearson FT Press.
Academic papers (indicative)
Armstrong, C. S., Guay, W. R., & Weber, J. P. (2010). The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics, 50(2), 179-234.
Bushman, R. M., and A. J. Smith. 2001. Financial accounting information and corporate governance. Journal of Accounting and Economics 32 (1-3):237-333.
Duchin, R., Matsusaka, J. G., & Ozbas, O. (2010). When are outside directors effective? Journal of Financial Economics, 96(2), 195-214.
Gaspar, J.-M., M. Massa, P. Matos, R. Patgiri, and Z. Rehman. 2013. Payout Policy Choices and Shareholder Investment Horizons. Review of Finance 17 (1):261-320.
Healy, P. M. 1985. The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics 7 (1-3):85-107.
Lambert, R. A. 2001. Contracting theory and accounting. Journal of Accounting and Economics 32 (1-3):3-87. McCahery, J.A., Sautner, Z. and Starks, L.T., 2015. Behind the scenes: The corporate governance preferences of institutional investors. Journal of Finance, forthcoming.
Voulgaris, G., Stathopoulos, K. and Walker, M., 2014. IFRS and the use of accounting-based performance measures in executive pay. The International Journal of Accounting, 49(4), pp.479-514.
Yermack, D. 2010. Shareholder Voting and Corporate Governance. Annual Review of Financial Economics 2 (1):103-125.
Subject specific skills
Work in a team or independently to identify the drivers of different governance-related phenomena.
Assess the contribution and implications of accounting and corporate governance research in the area.
Transferable skills
Perform complex analysis associated with the governance-related financial reporting practices of UK firms.
Clearly communicate arguments and justify interpretations on the corporate governance structure of UK firms.
Study time
| Type | Required |
|---|---|
| Lectures | 9 sessions of 1 hour (6%) |
| Seminars | 9 sessions of 1 hour (6%) |
| Other activity | 9 hours (6%) |
| Private study | 49 hours (33%) |
| Assessment | 74 hours (49%) |
| Total | 150 hours |
Private study description
Private Study to include preparation for lectures and seminars.
Other activity description
1 hr per week will be either a face to face lecture or asynchronous tasks with either online or face-to-face support
Costs
No further costs have been identified for this module.
You do not need to pass all assessment components to pass the module.
Assessment group D2
| Weighting | Study time | Eligible for self-certification | |
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Assessment component |
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| Group Presentation | 10% | 7 hours | No |
Reassessment component is the same |
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Assessment component |
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| Individual Assignment | 20% | 14 hours | Yes (extension) |
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2000 words. |
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Reassessment component is the same |
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Assessment component |
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| In-person Examination | 70% | 53 hours | No |
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Reassessment component is the same |
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Feedback on assessment
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Courses
This module is Optional for:
- Year 1 of TIBS-N4N3 MSc in Accounting and Finance