Corporate Governance and (In-)Efficient Capital Markets: A Fresh Look in Times of Crisis

Professor Heike SCHWEITZER

 Thursday, 8.45-10.45, Sala Triaria

secretary Marlies Becker 

starts in January 2010

 

Course Description:

The current financial crisis is not only a financial crisis. It is also a crisis of economic institutions. 

For large parts of the 20th century, one of the central challenges of a well-functioning market economy was how to overcome the problems associated with the “separation of ownership and control” in large modern corporations. Continental European economies have struggled with conflicts between majorities and minorities. There has been a wide search for optimal principles of “corporate governance”.

 One of the instruments of corporate governance which was regarded as increasingly important was “external corporate governance”: the well-functioning of corporations was to be guaranteed through financial markets. Financial markets were thought to be inherently efficient, speaking with wisdom greater than any of its participants – a claim that was conceptualized in the “efficient capital market hypothesis”. If the capital markets were left to exert sufficient pressure on corporations, the latter would be steered towards maximum gains and efficiency. As a consequence, the management of corporations was tied ever more closely to the working of financial markets and to the development of share prices. Certain groups of shareholders, like equity funds or hedge-funds, used finance-driven business models to guide their action. The discussions on takeover regulation were driven by the idea of financial markets acting as a mechanism of external corporate governance.

With the current crisis, the “efficient capital market hypothesis” has lost much of its credibility. In this seminar, we shall discuss what this means for corporate governance today. Do we need to rethink the fundamental concepts of corporate governance, like the concept of shareholder value? Do we need to find a new balance between internal and external mechanisms of corporate governance? What can be the function of capital markets for corporate governance in the light of recent insights? 

The seminar is addressed to all those with an interest in fundamental concepts of corporate law, financial markets and economic regulation. It will introduce the established concepts of corporate governance in a comparative perspective, and will strive to discuss them in the light of recent developments. As there is no well-trodden ground, it is a strongly research-oriented seminar. Researchers will be asked to prepare presentations and to actively participate.

 

Seminars 

1. Corporate governance and efficient capital markets – New challenges after the failure of a pre-crisis orthodoxy
 

2. The financial crisis – evolution and causes

 

3. Goals of corporations – shareholder value

 

4. Internal corporate governance – Fiduciary duties and their control and enforcement

 

5. External corporate governance – Control of companies through capital markets. The “efficient capital market hypothesis” and its critics

 

6. Linking management to capital markets I – Principles of remuneration

 

7. Linking management to capital markets II – New types of active shareholders: private equity investors and hedge funds

 

8. Linking management to capital markets III – Markets for corporate control/takeovers and the debate about takeover defences

 

9. Who controls financial institutions and capital markets?

 

10. Imbalances between financial markets and the real economy – What can we do about it?