The Aspen Institute Corporate Governance and Accountability
Project:
Rethinking MBA Curriculum in the Finance Discipline
Supported by the Alfred P. Sloan Foundation
MBA Finance, Rethought:
Faculty at the Washington State University, Vancouver, MBA Program are rethinking the finance
curriculum. As part of the Aspen Institute’s Corporate Governance and Accountability Project, WSU is
working to reframe their core MBA Finance Course, “Problems in Financial Management” towards a
more explicit treatment of stakeholders’ interests in financial managers’ decision making. The intention
of this new course is to demonstrate to students that maximizing firm value necessitates focusing on more
than shareholders.
For more about the philosophy behind this new course, see Professor Becker-Blease’s Case in Point
essay, “Do Stakeholders Belong in Corporate Finance?”
It is the goal of the CGA Project to work with a select group of faculty partners to test drive this
new and innovative course across the American business school landscape. The complete syllabus
with teaching plans will soon be available at www.CasePlace.org. Interested finance faculty should
contact Alex.Roberts@aspeninstitute.org or jblease@vancouver.wsu.edu for more information.
On WSU’s Curriculum Reform Efforts:
John Becker-Blease, Finance Professor at WSU, is heading up this effort to reshape the finance syllabus.
The MBA program at WSU emphasizes sustainable stakeholder engagement, where strategic stakeholder
relationships form the foundation for long term organizational success. Each course in the MBA program
uses this focus as a central organizing premise.
CGA in Brief::
Since 2003, The Aspen Institute Center for Business Education has received nearly $1,000,000 in funding
from the Sloan Foundation to underwrite its Corporate Governance and Accountability Project
(http://aspencbe.org/networks/CGA.html). The Project aims to influence prevailing models of corporate
governance and theories of the firm, as they are understood and taught by business school faculty.
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PROBLEMS IN FINANCIAL MANAGEMENT
MBA-LEVEL CORPORATE FINANCE COURSE
COURSE FRAMEWORK, TEACHING NOTES & SYLLABUS
2
Interactive Table of Contents
Strategic Stakeholder Engagement: Organizing Framework for WSU Vancouver MBA Program
Course Syllabus
Introduction and Overview of the course
Module Summaries
Course Information (description, objectives, grading, contact info, etc.)
Course Schedule
Module 1 Review Fundamental Microeconomics and Financial Management
Learning Goals
Readings
Additional Materials
Pedagogical Purpose and Notes
References
Module 2 Goal of the Corporation
Learning Goals;
Readings
Additional Materials
Pedagogical Purpose and Notes
Additional Talking Points
References
Module 3 Valuation
Learning Goals
Readings
Additional Materials
Pedagogical Purpose and Notes
Additional Talking Points
References
Module 4 Capital Structure
Learning Goals
Readings
Additional Materials
Pedagogical Purpose and Notes
Additional Talking Points
References
Module 5 Agency Theory & Governance
Learning Goals
Readings
Additional Materials
Pedagogical Purpose and Notes
3
Additional Talking Points
References
Module 6 Payout Policy
Learning Goals
Readings
Additional Materials
Pedagogical Purpose and Notes
Additional Talking Points
References
Module 7 M&A and Corporate Structure
Learning Goals
Readings
Additional Materials
Pedagogical Purpose and Notes
Additional Talking Points
References
Modules in Brief
Class Project
Complete Course References
4
Strategic Stakeholder Engagement: Organizing Framework for WSU Vancouver MBA
Program
The finance course starts by reviewing the stakeholder approach the MBA program uses and how
this course fits into that model. The model is presented on the next page. The model is first
presented in a course on Stakeholders and Competitive Advantage that all students take as their
first course in the MBA program. Here we start by reinforcing the key points:
 Organizational strategy is determined by:
 The organization’s core values and views about how they want to operate.
 Market conditions that determine where they can find a competitive niche.
 Strategy is developed by applying theory from the key business disciplines: marketing,
accounting, management, finance, and information systems.

Resources are necessary to execute the strategy. Those resources that lead to a positional
advantage are usually intangible and often relationship based. The organization develops
a resource mix that is not imitable by competitors.

Stakeholders (consumers, value chain partners, investors, employees, and publics) supply
the resources. The organization must understand what motivates them to contribute to
the organization. The organization must clearly understand what it needs from the
stakeholders. Often there are conflicting expectations from different stakeholders which
need to be balanced. Sometimes stakeholders may have relationships between
themselves that affect how the organization works with them to assemble their resource
mix.
Business leaders must orchestrate harmony between the goals and expectations for the
organization and stakeholders. Often tensions arise around differing expectations. Good
leadership anticipates these tensions and proactively crafts solutions. The MBA program
curriculum is designed to develop talents for business leaders to think comprehensively when
making decisions. For instance, theories presented in finance examine the impact on investors
and also on other stakeholders such as employees or the public interest.
5
Washington State University Vancouver
Theoretical Framework for MBA Curriculum using a Strategic Stakeholder
Engagement Focus
(See CasePlace.org for a recording of the previous Web-Conference from WSU,
Vancouver: Integrating Stakeholder Theory into the MBA Curriculum)
6
Course Syllabus
Introduction and Overview
Teaching business ethics, always something of an embarrassment, may simply come to be
teaching Finance well! (Stuart Greenbaum)
The purpose of this course is to provide students with a heightened appreciation of the role of a
financial manager within a firm and to understand the tools and the nature of the decisions that
financial managers must make. Paramount to the topic is an understanding of what constitutes a
“good” manager. A traditional finance characterization of a good manager is one who adopts the
most firm-value-maximizing projects in the interests of maximizing current shareholders’ wealth
(e.g. Brealey, Myers, and Allen, pp 20-28). This model is sometimes called the shareholder
primacy model. An alternative model, frequently termed the stakeholder model, argues that a
good manager is one who effectively maximizes the joint utility of all firm-stakeholders.1 A
substantial literature has evolved highlighting the tensions between the two models. The goal of
this course is to expose students to both of these models in the context of a traditional core-MBA
finance class. The intent is for students to leave the course understanding in which situations the
actions of stakeholder-focused managers and shareholder-focus managers will be the same and in
which situations the actions could be different. In particular, students will appreciate that
increased attention to the interests of all stakeholders is frequently essential to maximizing the
long-term value of the firm and therefore current shareholder wealth.
First, I should place this course within the context of the MBA curriculum at Washington State
University, Vancouver (WSUV). The MBA at WSUV is focused on the stakeholder model of
the firm and there is only one graduate-level finance course offered. Given that students do not
have alternative sources for topics such as capital structure, payout policy, practical capital
budgeting issues, agency and governance issues, and the market for corporate control a
substantial portion of this course is dedicated to the specifics of these topics. However, the lens
through which we examine these topics includes a strong element of stakeholder interests in the
effort to maximize firm value.
This course also reflects my understanding and interpretation of the stakeholder model,
especially as it relates to shareholder primacy and firm-value maximization. I have found
Michael Jensen’s “Maximization, Stakeholder Theory, and the Corporate Objective Function”
particularly influential in this process. As a traditionally-trained financial economist, I have an
undoubtedly biased view towards the shareholder primacy model and have likely sought out
those elements of the stakeholder model that fit most seamlessly into the former. However, what
appears evident is that in many, and likely most, situations in which a typical MBA student will
find his or herself making an important decision, the correct application of the stakeholder and
shareholder models will lead to a similar decision. Thus, at a practical level, my efforts are
better placed in trying to equip students with superior tools with which to identify and analyze
1
In many respects, the stakeholder model is an emerging model with less well-defined goals and terminology than
the shareholder primacy model. Donaldson and Preston (1995, Academy of Management Review) provide a lucid
description of this issue.
7
the economic effects of their decisions on various stakeholders rather than enter them into the
important debate between the two theories.
Module 1 of the course is dedicated to review of the material most students would receive in an
undergraduate-level introductory financial management course. These topics include time value
of money, basic cash-flow-based asset valuation mechanics, an understanding of the relation
between risk and reward based on the CAPM, estimation of project and firm-level cost of capital,
and basic capital budgeting tools including NPV and IRR analysis. Student will also read the
Graham and Harvey (2001) survey piece of CFOs, which provides an important reference piece
throughout the course to map the contents of the course to actual practice.
Module 2 introduces students to the shareholder and stakeholder-focused models. Although
students will have been exposed to both models in previous courses (they typically take the
finance course during their second year in the program), they will likely not have seen a rigorous
treatment of the shareholder primacy model. Within the context of perfect markets, I show that
the shareholder primacy model and the stakeholder model lead managers to undertake identical
actions. In particular, managers will maximize the value of the firm, which is equivalent to
maximizing shareholders’ value, by optimizing the trade-offs among all stakeholders to create
the highest long-term firm value, and this long-term value is accurately capitalized into the
immediate share price.
However, as we introduce market imperfections, managers are presented with the opportunity to
pursue not only self-interest but also to transfer wealth from one stakeholder to another. This
issue persists even in the presence of nearly perfect contracting. Students are introduced, in a
general sense, to why market imperfections leads to short-termism, or the focusing of managerial
efforts towards short-term performance goals rather than long-term value.
Module 3 brings stakeholder tensions to the project level through capital budgeting decisions.
Students are first introduced to a more complete picture of the capital budgeting process
including estimation of cash flows, cost of capital, and incorporating the value of managerial
flexibility through real options analysis. We then discuss the issue of externalities, how these are
treated through the regulatory and external contracting process, and methods for managers to
internalize these externalities in their analysis.
Module 4 covers capital structure. Students are presented with the two most widely covered
theories in a traditional manner, although the module highlights the stakeholder impact of
financial distress and the possible tension between shareholder and stakeholder preferences. For
instance, the ease with which a labor force is reduced or implicit/explicit contracts with
customers/suppliers/communities are renegotiated may encourage firms to carry more debt in an
effort to maximize tax-shields than these stakeholders deem appropriate.
Module 5 reexamines the nature of agency conflicts within a firm and explores traditional
methods for addressing those problems. These methods include compensation policy, internal
monitoring via the board, and external monitoring via investors, particularly large investors. The
external market for corporate control is covered later in the course. One important dimension of
this module is to highlight the myriad of agency relationships that exist within a given firm.
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Another important dimension of this module is to reinforce how difficult it is to effectively
monitor managers who have only a single objective function (value maximization), and the
added difficulty imposed when other objectives are included. We will discuss mechanisms and
potential innovations that might enable principals to better insure that agents are acting
appropriately.
Module 6 covers payout policy. Although this topic is closely associated with capital structure,
sequencing it after the agency module provides a good opportunity for students to really explore
their understanding of the material to this point. That is, one can devise compelling rationales
for the importance of payout policy based on asymmetric information as well as agency
conflicts. Students should be able to largely derive the different theories of dividend policy
based on a carefully directed classroom discussion and prior to reading much of the material. In
addition, no readings are provided relating dividend policy to stakeholder theory. An interesting
exercise is to have students examine the stakeholder implications, if any, of various payout
policies.
Module 7 is the final module and a bit of a catch-all. In this module, we examine mergers and
acquisitions with two different lenses. First, from essentially a capital-budgeting framework, we
examine sound and less-sound economic rationales for acquisitions. We next focus more
explicitly on so-called disciplinary takeovers, and their role in alleviating the agency conflict
between managers and shareholders. We then discuss the rights and/or responsibilities of
stakeholders, managers, and directors in mergers and acquisitions. Finally, firm diversification
policy and director/manager entrenchment provide interesting examples of how the interests of
managers and non-shareholder stakeholders can compete with apparent shareholder interests.
In addition to those included, the course also requires students to use the Brealey, Myers, and
Allen (BMA) “Principles of Corporate Finance” textbook, which provides the bulk of the
traditional academic component to each topic.
9
Washington State University
College of Business
Spring 2009
FIN 526
Problems in Financial Management
Instructor Name
John R. Becker-Blease
Phone
360.546.9146
Email
jblease@vancouver.wsu.edu
Course Website
Fax
Meeting Times
Location
Office
See below
360.546.9037
W: 6:00-8:45
VMMC 214
308N
Office Hours
Tu 5:00-6:00
and by appt.
Support
360.645.9750
Course Description
The objective of this course is the application of finance theory and principles to the analysis of important
business problems. Specific topics will include capital budgeting, cost of capital, real options, capital
structure, payout policy, and enterprise valuation. The course is structured around the Enlightened
Shareholder Model or Enlightened Stakeholder Theory. Students are assumed to have basic knowledge
of the concepts of time value of money, valuation, capital budgeting, and cost of capital.
Course Objectives
1. Identify and critique normative theories of management’s role in the firm.
2. Conduct cash-flow and option-based valuation of real assets focusing on the long-term
impact for all stakeholders.
3. Understand how capital structure, payout, and compensation policies, as well as the market
for corporate control affect firm value and managerial actions.
4. Recognize the impact of agency conflicts and information asymmetries on firm performance
and devise effective controls.
Course Materials
Textbooks:
 Principles of Corporate Finance, by Brealey, Myers, and Allen, McGraw-Hill/Irwin 8th ed. (BMA)
Other:
 Course e-packet (see below)
 Access to current business news either online or in print form
 Additional readings as assigned during the semester
 Calculator with log and exponential functions
 Access to computer for spreadsheet analysis
10
The course website will be the primary source of communication outside of the classroom and you should
consult it on a regular basis. It can be accessed at
http://www.vancouver.wsu.edu/fac/beckerbl/FIN526/FIN526.html
E-Packet
This course makes heavy use of academic articles and other forms of media. I will post on the course
website a running list of readings as we progress through the course. No required reading will be posted
with less than one week of lead time (typically two) and the readings will come primarily from the listed
readings in the module (discussed below). I like to keep the exact list of required readings flexible to best
tailor the coverage to the particular needs/interests of the class, as well as new developments in the field.
Many of the articles will be familiar to you from other classes, but please plan to still read these again. In
most cases, the readings are available through the library website or the Social Science Research Network
(SSRN), and I will provide direct links if available. Cases are available from the HBS website. Other
material will either be provided directly to you or information provided in a timely manner so that you
can gain access to the material prior to class.
Although students can certainly economize on the collection process, to the greatest extent possible I
encourage you to individually collect the articles as one of the reasons that I require you to retrieve the
articles is to hone your search skills as well as expose you to other interesting papers found along the way.
The overall course is organized around 7 modules. Each module contains a brief description and learning
goals, a list of readings, and other relevant material. Although the modules are separate, the best students
will actively incorporate each new module into their cumulative knowledge of the course material. The
characteristic that makes financial management most challenging is understanding how decisions made to
affect one facet of a company can also affect many other facets.
Grading
Each student’s course grade will be calculated using the following weights:
Participation
20%
Firm Analysis Project
20%
Exams
60%
Participation
Class participation accounts for 20% of the student’s final grade. Participation is an amalgamation of
attendance, meaningful contributions to class discussions, responses to cold-call questions, participation
is case discussions, and completion of take-home assignments. My expectation is that each student will
arrive to class having completely prepared the required material for the day. Please note that simply
attending all classes and group meetings is not sufficient to earn full participation credit. In addition,
“good” participation does not translate into dominating classroom discussions. A good participant
facilitates discussion rather than monopolizes it.
Firm Analysis Project
Early in the semester, students will be asked to select a publicly traded firm to serve as a learning
tool throughout the semester. At various points during the semester, typically corresponding
with major topic sections, students will be given a set of information to gather and analyze
related to their company, typically related to current course topics. Students will be expected to
11
incorporate their firm’s experience into classroom discussions, which comprises an element of
the participation grade, and to prepare a single, in-depth analysis of their firm to be submitted at
the end of the semester.
Students should select their firm with an eye towards their eventual 702 project. The series of
questions and assignments are designed to incorporate many of the topics of this course into a
meaningful analysis, similar to what you will be asked to do for 702. Students are expected to
submit formal and thoughtful responses and analyses to each of the assignments. Due dates will
be announced when the assignments are distributed.
Exams
Both exams are cumulative and comprehensive and will be quite challenging. Exams will include both
qualitative and quantitative elements. Exams are intended to explore the student’s ability to apply
important concepts from the course in both familiar and unfamiliar situations. I do not provide formula
sheets or allow outside resources (such as “cheat sheets” or open books) during exams, so students should
prepare accordingly. The mid-term and final are each worth 30% of the student’s final grade.
Keys to Success
This course is, and is intended to be, quite challenging. If hearsay can be trusted, I have succeeded in my
intent. Although no particular topic is particularly difficult, the pace and volume of material, as well as
the cumulative nature of the learning, leads to a course that will require a steady, but hopefully not overlyburdensome, time-commitment. As graduate students, I expect each of you to be an active learner in that
you will prepare as completely as possible for every meeting, come to class with questions and notes
prepared, and will contribute to a dynamic classroom environment. Do not hesitate to seek additional
help, as necessary. Although I do not have specific team-exercises incorporated into this class, I strongly
encourage you to work in teams on assignments and in preparation for exams.
Recognize that this course contains important quantitative and qualitative elements. In most situations,
quantitative questions have a single, “most correct” response, although the methods of determining this
response may be varied. Performance on the qualitative elements of the course is frequently determined
by a combination of knowledge and insightfulness as well as ability to clearly articulate an argument.
Please carefully prepare any written responses as I can only evaluate what is written, not what you
intended to write.
Contacting Me and Office Hours:
I currently have office hours planned for Wednesday from 5-6 PM. In addition, I have provided numbers
where I may be reached. I typically check my email throughout the day and this is an excellent manner in
which to contact me. Please note, I tend to be most favorably disposed to those students who come to
office hours prepared (having read the chapters, attended lectures, and have well thought-out questions),
in a timely manner (the material you are asking about has been lectured on within the past week), and
asking for help, not charity (explaining a concept or examples, for instance, not asking about “what will
be on the exam?” or “is this important?”).
Students with Disabilities
I am committed to providing all reasonable assistance to help each of you to be successful in this course.
Reasonable accommodations are available for students with a documented disability. Please visit the
12
Disability Resource Center (DRC) during the first two weeks of every semester to seek information or to
qualify for accommodations. All accommodations must be approved through the DRC. Please ask the
Associate Director of Student Services, in the Student Services Building (Room 203), to forward the
appropriate documentation. Parents with potential child-care concerns should see me during the first
week as well (i.e. due to snow-days, illness, etc.).
Academic Integrity
Your personal integrity is the foundation for your success and happiness in business and in life; you
should treat it as your most valuable asset. Academic integrity is also the foundation of our institution’s
reputation and success. I will pursue all suspected cases of academic dishonesty consistent with the
policies of the College of Business and Washington State University. Academic dishonesty includes, but
is not limited to: copying the work of others (or allowing others to copy your work) for exams, cases or
assignments. I also consider it a violation of academic integrity for you to refer to case notes from
students who previously took this course either at WSU or at another institution.
Academic Dishonesty – Students are expected to uphold the WSU standard of conduct relating to
academic dishonesty (see WSU Student Handbook, WAC 504-25-015 as well as the Business Program
Guidelines related to Academic Integrity). Students assume full responsibility for the content and
integrity of the academic work they submit. The guiding principle of academic integrity shall be that a
student’s submitted work, examinations, reports, and projects must be that student’s own work. Students
shall be guilty of violating the honor code if they:
1. Represent the work of others as their own.
2. Use or obtain unauthorized assistance in any academic work.
3. Give unauthorized assistance to other students.
4. Modify, without instructor approval, an examination, paper, record or report for the
purpose of obtaining additional credit.
5. Misrepresent the content of submitted work.
Consequences – Please note, these consequences are different than what you may have encountered in
other classes so please read and understand them well. At a minimum, cheating or academic dishonesty of
any form will result in a failing grade for this class, and may lead to your expulsion from the university. I
do not have a policy of assigning a “zero” for the first infraction and taking more severe action on the
second violation. Rather, the first incidence of cheating of any form will result in a failing grade. Please
be aware that I take this issue very seriously and all incidences will be referred to the appropriate
university administrator with my typical recommendation for dismissal from the university.
Student Conduct and Deportment
Per the WSU Vancouver Student Handbook, students are, “Expected to show due respect for …the
rights of others.” For example, “While students have the right to freedom of expression…this
expression cannot interfere with the rights of others or disrupt the processes of the University. Any
malicious act which causes harm to any person’s physical or mental well being is prohibited.” Such
activities include sexual harassment, discrimination, intimidation (e.g. bullying or belittling fellow
students), disruptive behavior (e.g., loud talking in class, or slanderous comments made about other
students or faculty (e.g., false and unsubstantiated claims of discrimination made for the purpose of
improving grades). Students should be familiar with the Washington State University standards for
student conduct presented in the WSU Vancouver student handbook (available from student services).
“Students who fail to conduct themselves properly are subject to discipline, which may extend to
temporary or permanent removal from the institution.”
Reporting Violations
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Anyone wishing to report violations of the student or faculty conduct code should use the following
procedures. Whenever possible, collect any documentation of the offending activity (e.g. written
comments from other students or faculty, e-mail messages etc.). It is also useful for students to put
their concerns in writing to faculty or administrators pursuing the matter can accurately convey the
student’s concerns. Present the complaint and supporting documentation to the appropriate faculty
member or administrator. The process should begin with the class instructor. If the instructor is
unable to resolve the matter to the student’s satisfaction, of the problem behavior spans multiple
classes, or if the nature of the problem makes this impossible, the complaint should be forwarded to
the Program Director. If the matter is still not resolved to the student’s satisfaction, the complaint
should proceed to the Associate Dean, then the Chancellor and finally to the University Ombudsman.
See the WSU Vancouver student manual for more details concerning this process.
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Class
Meeting
Date
1-9
1-16
1-23
Topics
Course Introduction, Review of Valuation,
Role of the Firm, Goal of Management, and
Enlightened Value Seeking and its Limitations.
NPV/IRR/DCF analysis.
Projecting TIFCF, Identification of priced and
non-priced externalities.
Evaluating “non-traditional” capital investments
Learning
Objectives
Covered
1
Module
1
1
2
Shareholder Primacy/Stakeholder Theory
Enlightened Wealth Maximization
1,2
2
Stakeholder Theory
Enlightened Wealth Maximization
Binomial Option Pricing
Black-Scholes
1-30
Financial & Real Options
2
3
2-5
Real Option Identification & Valuation
2
3
2-12
Cost of Capital and Capital Structure
2-19
Capital Structure
3
2,3,4
4
1,3,4
5
Agency Theory
3,4
2,3
5
6
Agency Theory
Miller & Modigliani (1961)
Economic Value Added
Market Value Added
Internal Capital Markets
Agency Conflicts
3-5
3-12
3-19
3-26
4-2
Corporate Structure
2,3
7
4-9
Diversification
2,4
7
4-16
Market for Corporate Control
2,4
7
4-23
Managerial Entrenchment & Review
2,4
7
4-28/5-2
Miller & Modigliani (1958)
Capital Asset Pricing Model
Three-Factor Model
Arbitrage Pricing Theory
Static Trade-Off Theory
Information Asymmetry
Pecking Order Theory
2,3
Corporate Governance, Agency Conflicts, and
Managerial Performance
Role of the Board
Mid-Term Exam (Full Session)
Spring Break (No Classes)
Compensation Policy
Payout Policy
2-26
Relevant Concepts and Theories
Final Exam
15
Shareholder Interest Hypothesis
Managerial Entrenchment Hypothesis
Date TBA
Module 1: Review Fundamental Microeconomics and Financial Management
Learning Goals
 Review basic concepts of time value, project and firm valuation, capital budgeting, riskreward, market efficiency.
 Review market structures, short and long-term equilibrium, competition, normal and excess
profit, barriers to entry, monopolies and monopsonies.
Readings
a) BMA CHs 1-12. (review of intro finance course)
b) Goodwin, Neva. “The limitations of markets” Background essay”.
c) Graham and Harvey (2001) “The theory and practice of corporate finance: evidence from
the field” (particularly pages 187-209).
Additional Materials
 Ken Freeman recording from HBS. We will revisit this example many times during the
semester for different purposes. In this instance, we can highlight the fact that switching
costs and the existence of a contract are barriers to entry that gave Corning the ability to
make necessary changes. We can also discuss whether his assertion that the unit became
profitable translates into only accounting profit or also economic profit, and how the
existence of the barriers can help us to think about this.
Pedagogical Purpose and Notes
 This module may require a fair commitment of time, depending upon the level of
preparation of the incoming students. Students will be notified several weeks before the
start of classes that they need to review these chapters.
 Within the stakeholder framework, students not only need to recall the basic tools of
financial management, but also need to solidify their understanding of the role that
competitive structure plays in markets and the link between NPV and economic rents. In
particular, it is useful to stress the importance of barriers to entry to achieving economic
rents.
 The Goodwin article is the introduction to her CasePlace module and provides useful
information for review of markets as well as an even-handed discussion of market-oriented
behavior and market failures.
 The Graham and Harvey survey piece is a useful tool for helping students to appreciate the
importance of the topics covered in the course. We will refer back to the statistics reported
in this paper through the course. Paper also provides brief description of the theories
underlying the tests. In this first module, students should be directed primarily towards
pages 187-209. The capital structure section of the paper is read as part of the capital
structure module.
References
 Goodwin, Neva. “The limitations of markets: Background essay” from CasePlace.org.
 Graham, John R. and C.R. Harvey. 2001. “The theory and practice of corporate finance:
evidence from the field” Journal of Financial Economics 60, 187-243.
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Module 2: Goal of the Corporation
Learning Goals
 Describe the following models
o shareholder primacy
o stakeholder model
o balanced scorecard
o enlightened value maximization
o long-term value primacy
 Describe perfect market assumptions
 Long-term vs. Short-term view of the firm.
 Legal framework for managerial decision making.
Readings
 Winkler, Adam, “Corporate laws or the law of business?: Stakeholders and corporate
governance at the end of history”.
 Stout, Lynn, 2002, “Bad and not-so-bad arguments for stakeholder primacy”.
 Clement (2005). The lessons from stakeholder theory for U.S. business leaders
 Barry, Norman, 2002. “The stakeholder concept of corporate control is illogical and
impractical”.
 Jensen, Michael, “Value Maximization, Stakeholder Theory, and the Corporate Objective
Function”.
 Graham, Harvey, and Rajgopal (2006), “Value Destruction and Financial Reporting
Decisions”
 Stout, Lynn. 2005, “New Thinking on “Shareholder Primacy”
 Bird, Ron, A.D. Hall, F. Momente, and F. Reggiani “What corporate social responsibility
activities are valued by the market?”
 Useem and Badaracco “Managerial Duties and Business Law”
 Eisenberg, Melvin Aron, “Corporate conduct that does not maximize shareholder gain”
 Tirole, Jean, 2001. “Corporate Governance”
 Greenbaum, Stuart I., “Corporate governance and the reinvention of finance”.
Additional Materials
 Veridian Case: This provides an interesting example of stakeholder-aligned decision
making and possibly suggests insights into how to make necessary tradeoffs. There is also
an interesting parallel between this case and some of Stout’s comments that will help to
not only solidify students’ understanding of the various models, but also potential
weaknesses with each model (and his arguments in some instances). We return to this case
in the last session of the course for a more formal analysis.
 Michael Jensen and Werner Erhard (2007) thoughts of “integrity” provides a useful
framework for discussion. The positive casting of integrity can help to foster a discussion
of the importance of positive vs. normative discussions and theories that are found
throughout much of the reading.
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Mary Gentile’s teaching notes available at CasePlace.org
(http://www.caseplace.org/references/references_show.htm?doc_id=306949) can help to
motivate a discussion on these issues. A large module addressing “What the Law Allows”
is also available.
Pedagogical Purpose and Notes
 This is perhaps the most innovative module of the course. The purpose is to present
various theories of managerial behavior and to discuss the various merits of each and
ultimately provide compelling arguments that long-term value primacy or enlightened
value maximization theories capture the best elements of each theory. An informative piece
is Stuart Greenbaum’s speech to the Financial Intermediation Research Society, in which
he discusses the pressures to transform finance curricula with an increased emphasis on
ethics.
 It should also be stressed to students that none of these theories is complete in that each
tries to simplify a set of actions consistent with maximizing interests in a very complex
system. The premise of this course is that long-term value primacy, while also incomplete
in that it does not give specific guidelines of how tradeoffs are to be made, is generally
consistent with each of the other theories and provides a framework from which to improve
and homogenize managerial goals.
 The Winkler piece provides an excellent starting point in that it provides a concise
description of the evolution of law surrounding the shareholder-primacy and stakeholder
views of the firm, or what he calls “corporate law” and the “law of business”. This piece
provides good material to reference in the agency/governance and M&A modules of the
course.
 I next discuss the Stout piece “Bad and Not-so-Bad Arguments for Shareholder Primacy”.
Although written from a legal context, it provides very usable talking points on several
common arguments for shareholder primacy (i.e. “shareholders as owners”, “shareholders
as residual claimants”). She also makes the point that shareholder value can be increased
through both wealth transfers and wealth creation. This allows for an interesting discussion
of what we mean when we say “shareholders”, as shareholders with different horizons may
have very different interests, and the interests of majority and minority shareholders can
often conflict. We return to this discussion later in the course with another Stout piece “The
Mythical Benefits of Shareholder Control”.
 The Clement article provides a useful synthesis of stakeholder-focused research and
discusses the legal basis for corporations to include stakeholders’ interests in their decisionmaking. This discussion can also be augmented with the Useem and Badaracco article that
very clearly lays out managerial duties within business law. Similarly, D&O fiduciary
duties are discussed in HBS Reading 9-304-064.
 We then transition to discussing some of the weaknesses of the stakeholder model. In
particular, the Barry article provides a very cogent description of the multiple objective
function problem inherent with stakeholderism. He shows how the collective choice
procedure described by Arrow can easily collapse under majority rule rather than the
inherent dictatorship of shareholder primacy. This reading can be augmented with the
Tirole article, which may be a bit beyond some MBA students, but nonetheless provides an
interesting read and shows how lack of pledgeable income, deadlocks in decision making,
18
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and lack of a clear mission for management impede the effectiveness of the stakeholder
model.
Finally, we transition into what I call “long-term value primacy”, which is essentially the
argument that firms “should” be managed to maximize long-term value (or the value for
long-term shareholders). In order to achieve this end, managers must be cognizant of the
impact that their decisions will have on various stakeholders, and importantly stakeholders’
response to these decisions, but that maximizing the value of the left-hand-side of the
balance sheet gives a clear objective function. This is the point of the Jensen article “Value
Maximization, Stakeholder Theory, and the Corporate Objective Function”.
The Graham, Harvey, and Rajgopal (2006) article “Value Destruction and Financial
Reporting Decisions” is the next article we discuss. It is an easy read and based on survey
results, so is quite accessible to all MBAs. The authors find that CFOs acknowledge a
fairly pervasive pattern of sacrificing long-term value for short-term performance.
Although the results will not be too surprising to many students, this article offers several
interesting insights and examples that are useful later in the course. In particular it
highlights the role of information asymmetry in affecting managerial actions and
shareholder myopia. Interestingly, one important reason for managing earnings was to
“assure stakeholders business is stable”.
We then conclude with a discussion of the Bird, Hall, Momente’, and Reggiani article
“What Corporate Social Responsibility Activities are Valued by the Market?”. This article
provides a nice synthesis of the two theories and provides some interesting results
suggesting that CSR focused at employees is more valued than environmental or diversity
CSR activities. This paper helps to solidify the underlying theme of the remainder of the
course that long-tern value and CSR can and should often be linked. It is also possible to
augment this discussion with the McKinsey article “Assessing the Impact of Societal
Issues: A McKinsey Global Survey”, as this article interviews executives about what
societal issues they anticipate will affect firm value within the next five years.
There exists considerable variation in how Stakeholder Theory, and to a lesser extent
Shareholder Primacy are presented in the literature. Stakeholder Theory is sometimes cast
as suggesting that the only purpose of a corporate is to enhance societal welfare, notably
ignoring shareholders’ interests. Thus, the objective function is to maximize the aggregate
wealth of all stakeholders. This characterization is more common in the legal literature.
Within the business literature, stakeholder theory is frequently portrayed as a form of
“responsible” shareholder wealth maximization in that frequently shareholders are treated
as first-among-equals and frequently as a reasonable target group. This view frequently
emphasizes the need to focus on long-term interests, and suggests that incorporating the
interests of all stakeholders is necessary to achieve long-term wealth maximization. Many
proponents of the shareholder primacy model would argue for very similar or even
identical goals (e.g. Jensen’s Enlightened Wealth Maximization). At the extreme,
Shareholder Primacy is sometimes construed to mean managing to the immediate interests
of current shareholders (i.e. current stock price), regardless of its impact on future share
prices. Many financial economists would view this as a perversion of shareholder primacy
resulting from information disparities and agency conflicts.
Additional Talking Points
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Current mortgage crisis. Is there blame? What are the limits of caveat emptor? Did
lenders behave unethically? Did borrowers behave irresponsibly? What are the
implications of government intervention in this situation?
Jensen and Erhard’s discussion of integrity. Why do systems get out of integrity? How can
we insure that a system remains in integrity?
What is the role of the government and legal systems in stakeholder theory? Is their role
simply to give voice to under-represented stakeholders? Does the presence of legal
protection ultimately help or hinder the cause of protected stakeholders? This idea is
frequently linked to Hardin’s (1968 Science) “Tragedy of the Commons”, in which
unlimited access to and infinite wants of a scarce resource leads to overexploitation. This
also raises the question of whether government policy is, or should be, independent of
business influence. To the extent that corporations are simply business citizens, this then is
a Coasian problem. However, given the nature of transactions costs in coordinating the
interests of the many, corporations may have a marked advantage in influencing policy
(can use the European pollution credit example).
If a “supplier” is another corporation, is it ethical for a firm to try to drive the supplier’s
economic rents to zero? In what manner is the answer different if the “supplier” is an
individual? When is the use of monopsonistic power “appropriate” and when is it
“inappropriate”? Classic kind of a WalMart example.
References
 Winkler, Adam, “Corporate law or the law of business?: Stakeholders and corporate
governance at the end of history”, Law and Contemporary Problems v.67, pp.109-133.
https://www.law.duke.edu/journals/lcp/downloads/lcp67dautumn2004p109.pdf
 Jensen, Michael, “Value Maximization, Stakeholder Theory, and the Corporate Objective
Function” on SSRN.
 Greenbaum, Stuart I., 2006, “Corporate governance and the reinvention of finance”,
Journal of Applied Finance, 16(2), 5-11.
 Eisenberg, Melvin A., 1998 “Corporate conduct that does not maximize shareholder gain”
Legal conduct, ethical conduct, the penumbra effect, reciprocity, the prisoner’s dilemma,
sheep’s clothing, social conduct, and disclosure”, Stetson Law Review XXVIII.1, 1-27.
 Barry, Norman, 2002. “The stakeholder concept of corporate control is illogical and
impractical”, The Independent Review v.VI(4), pp.541-554.
 Stout, Linda, 2002, “Bad and not-so-bad arguments for shareholder primacy”, Southern
California Law Review, 75, 1189-1209.
 Clement, Ronald W., 2005. The lessons from stakeholder theory for U.S. business leaders,
Business Horizons, 48, 255-264.
 Bird, Ron, A.D. Hall, F. Momente, and F. Reggiani, 2007 “What corporate social
responsibility activities are valued by the market?”, Journal of Business Ethics 76: 189206.
 “Assessing the impact of societal issues: A McKinsey global survey” 2007.
 Graham, J.R., C.R. Harvey, and S. Rajgopal, 2006. “Value Destruction and Financial
Reporting Decisions” Financial Analysts Journal 62(6) 27-39.
 Useem, Jerry and J. Badaracco, Managerial Duties and Business Law, HBS-Case-9-395244 (note).
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Stout, Lynn. “New Thinking on ‘Shareholder Primacy’”,
http://www.law.ucla.edu/docs/bus.sloan-stout.pdf
Tirole, Jean, 2001. “Corporate Governance”, Econometrica 69(1), 1-35.
21
Module 3: Valuation
Learning Goals
 Cover limitations of adjusted weighted average cost of capital
 Introduce APV technique
 Internalization of externalities.
 Overview of financial options including binomial and Black-Scholes valuation techniques.
 Fundamentals of Real Option Valuation
Required Readings
 BMA CH 19-22.
 Luehrman, Timothy A., “Using APV: A better tool for valuing operations”.
 Luehrman, Timothy A., “Investment Opportunities as real options: getting started with the
numbers”.
 Luehrman, Timothy A., “Strategy as a portfolio of real options”
 Copeland, Tom and Peter Tufano, “A real-world way to manage real options”
 Mendonca and Oppenheim (2007), “Investing in sustainability: An interview with Al Gore
and David Blood” May, 2007 (pp11).
Additional Material
 Tree Values, HBS 9-201-031.
 Timber land and Community Involvement, HBS 9-796-156.
 Plum Creek Timber, HBS 9-801-399. This case, in conjunction with the “What Price
Farmed Fish” exercise below, describes some of the complexities of incorporating various
stakeholders’ interests into decision-making.
 de Leyva and Lekander (2003), “Climate change for Europe’s utilities”, The McKinsey
Quarterly 2003 No. 1. pp120-131. This article describes the European cap and trade
system. It appears that the issues raised by the authors regarding inherent weaknesses in
the system have come to fruition.
 As a class exercise, we read “What Price Farmed Fish: A Review of the Environmental and
Social Costs of Farming Carnivorous Fish”, written by Michael L. Weber for the SeaWeb
Aquaculture Clearinghouse. The article provides a fairly comprehensive but accessible
discussion of the impacts that carnivorous fish farming has primarily in the U.S., but also
worldwide. We use this piece to motivate a discussion of how, from a “stakeholder”
perspective, one would go about analyzing the viability of an investment in an aquaculture
operation. This exercise is useful to highlight the challenges faced in quantifying certain
vital inputs necessary to make investment decisions from the stakeholder perspective. It
also brings up the interesting question of the ethics of exporting environmental problems
and the challenges of contracting.
 CITIC Tower II HKU199 (Centre for Asian Business Cases) offers a simple real option
application that is a useful in-class exercise.
Pedagogical Purpose and Notes
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The coverage by BMA of chapters 16-19 is somewhat mixed with its terminology/topics.
For instance, the concept of adjusted-present-value is used in Chapter 18 to explain the
trade-off theory, but the concept of APV is not presented until Ch 19. However, Ch 19
makes reference to the leverage beta issues explained in Ch 17. Thus, depending upon the
level of preparation of the students, the instructor will need to juggle material from all of
the chapters of this section to a certain extent. In this course, I choose to present the APV
first because of its usefulness in understanding several aspects of capital structure, and then
return to some of the other elements of Ch 19 in later topics.
Introduce students to the underlying assumptions of traditional NPV analysis and the
insights offered by APV analysis. I include in this section a fairly thorough review of
estimating cost of capital, focusing primarily on a single-factor market model.
I next examine a simple valuation example of alternative harvesting strategies somewhat
similar to “Tree Values” (HBS 9-201-031). Tree valuation is also particularly appropriate
given the real options element later in the module. I follow this quick exercise with a more
thorough discussion of estimating free cash flows, especially based on pro forma financial
statements. The HBS case 9-206-028 is potentially useful in this regard.
Challenges of internalizing externalities is worth discussing at this stage, although the topic
will likely have been introduced in an earlier module. Neva Goodwin’s “The Limitations
of Markets: Backgroung Essay” is quite readable and treats neoclassical economics quite
even-handedly. I make a point of distinguishing between an externality (“an economic
choice or action that affects the welfare of others who, or that, are not party to the action or
choice”) and the notion of project effects on the broader firm vis-à-vis incremental cash
flows. An important question is whether and when the economic actor experiences the
impact of either positive or negative externalities.
Pollution is a classic example of an externality, and I like to discuss the inadequacies of
current laws in protecting the environment. The exportation of waste is a good example
including E-tech waste in China and ship salvage operations in India. There is an
interesting 60-Minutes piece on ship salvage operations in India that brings up some
interesting dilemmas (including child labor issues).
In a broader context, we discuss how effectively the “nexus-of-contracts” view of the firm
captures or reflects the desired social role of the firm. The European cap and trade system,
as described by de Leyva and Lekander (2003), “Climate change for Europe’s utilities”,
The McKinsey Quarterly 2003 No. 1. pp120-131 offers an interesting discussion of how
easily even well-intentioned programs to internalize externalities are corrupted.
We follow this material with the HBS case Plum Creek Timber, HBS 9-801-399, in which
the challenges of trying to meet all stakeholders’ interests as quite evident, although this
company appears to succeed. I also assign “What Price Farmed Fish” as a take-home
exercise in which I ask students to identify all affected stakeholders, describe the relative
bargaining/contractual power of each group, and devise ways to internalize the externalities
of farm-raised fish.
We then transition into an alternative valuation tool (real options). The coverage and
presentation of this material is fairly standard. We use the CITIC Tower II case as a
numerical example.
McDonald’s “Golden Arches” venture into Switzerland is a good example of a very shrewd
use of real options in a failed venture. Enron’s construction of peak-use power plants is a
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good example of real options analysis that pays off. McDonald’s current movie-rental
dimension is another good example.
Students can also consider how to incorporate stakeholder effects into options framework.
For instance, the impact that favorable current treatment of one stakeholder group can easy
contracting with that group and others in the future.
o An example is a manufacturer moving into a small community. The cost of “doing
good” within that community can be viewed as the price of an option to expand
production into other small communities with favorable conditions.
o The White and Rao pollution credit example provides some ideas for incorporating
real options methods into externality considerations.
Additional Talking Points
 Role of “Best Firms to Work For”, “Best Places to Live”, “Family-Friendly” and “WomenFriendly” publications in attracting skilled work-force (thus reducing search costs) and
providing non-pecuniary benefits to employees (thus reducing contracting costs).
 Should every firm seek to engage every stakeholder at the same level or is there a
necessary degree of satisficing? Consider Timberland example with its partnership with
City Year (described in HBS Case 9-304-086 and in “Strategic collaboration between
nonprofits and businesses” by James E. Austin, 2000, published in Non-Profit and
Voluntary Sector Quarterly). Alternatively, the Plum Creek Timber case and the “What
Price Farmed Fish” can provide useful examples as well.
 Does the incompleteness of a model translate into its lack of usefulness? Many would
argue that no model of managerial behavior is complete, as each includes elements and
behaviors that cannot be measured or monitored. Does this suggest that these models are
flawed? Consider Corning example; where the CEO made his shut-down decision based
on instinct more so than through a careful cost/benefit analysis because, in large part, the
impact on employees’ motivation was difficult, or even impossible, to predict and/or
measure with any degree of certainty. However, in hindsight, the choice appears to have
been a correct one (we can’t really speak to whether it was the correct one).
 Have students submit an analysis of the Sulfur Dioxide case by White and Rao. Students
will use Black-Scholes to determine whether the utility should purchase pollution credits or
install scrubbers. In addition to the proposed questions presented in the case, instructor can
talk of pecuniary and potential non-pecuniary benefits of various actions by the utility. The
nature of pollution credits and their effect on firm income statements can also be addressed.
 Discuss from the McKinsey pieces executives’ perceptions of societal issues and their
impact on value (specifically shareholder value).
References
 Luehrman, Timothy A. “Using APV: A Better Tool for Valuing Operations” in Harvard
Business Review May-June, 1997, 145-154.
 Luehrman, Timothy A., “Investment Opportunities as Real Options: Getting Started on the
Numbers” in Harvard Business Review July-August 1998, 51-67.
 Luehrman, Timothy A.. “Strategy as a portfolio of real options” Harvard Business Review,
Sep/Oct98, Vol. 76 Issue 5, p89-99
 Copeland, Tom and Peter Tufano, “A Real-World Way to Manage Real Options” in
Harvard Business Review, March 2004, 90-100.
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Mendonca, Lenny T. and Jeremy Oppenheim, “Investing in sustainability: An interview
with Al Gore and David Blood”, The McKinsey Quarterly May, 2007. (available online).
Assessing the impact of societal issues: A McKinsey global survey” conduct in 2007.
(available online).
25
Module 4: Capital Structure
Learning Goals
 Understand how the choice of capital structure can affect the value of assets.
 Begin to identify the pervasive nature of information asymmetries and their impact on
decision-making.
 Trade-Off and Pecking Order theories of capital structure
 Identify how choice of capital structure can affect various stakeholders and these
stakeholders’ response.
Required Readings
 BMA Chs 17-18.
 Graham and Harvey (2001) “The theory and practice of corporate finance: evidence form
the field” (pages 209-243).
 Wruck (1990) “Financial distress, reorganization, and organizational efficiency”.
 Opler and Titman (1994) “Financial Distress and Corporate Performance”
 Noronha and Singal (2004) “Financial Health and Airline Safety”
 Patrick, Steven C. “Three pieces to the capital structure puzzle: The cases of Alco
Standard, Comdisco, and Revco”.
Additional Material
 Sealed Air Corporation’s Leveraged Recapitalization (A) & (B), HBS 5-295-143.
Pedagogical Purpose and Notes
 Most of the material in this module is fairly standard. The exception is that I tend to stress
both in lecture and in the readings the impact of financial distress on stakeholders and their
response.
 Primary coverage is of impact that capital structure can have on firm value and managers’
ability to pursue value-maximizing policies.
 Graham and Harvey piece provides useful information on the relative importance managers
place on each of the theories of capital structure. The paper also provides a brief overview
of the salient elements of each theory.
 We start with a demonstration of Modigliani-Miller (1958) and discuss the nature of the
assumptions. We then generally follow the Brealey-Myers coverage of the static trade-off
and pecking order theories, including a discussion of the Patrick article “Three Pieces of
the Capital Structure Puzzle”, which although a bit dated, offers some germane examples.
 Next, we transition into a more in-depth discussion of costs of financial distress. Wruck
(1990), Opler and Titman (1994) and Kale and Shahrur (2007) are used as a back-drop for
discussing tax-shield and financial distress trade-offs. In general, these show that
stakeholders respond to potential financial distress in predicted ways. In addition, the
Hertzel, Li, Officer, and Rodgers (2008) article on the effect of bankruptcies along the
supply chain is also potentially informative.
 An interesting question arises into how the threat of financial distress can be beneficial to
firm value. The Bronars and Deere (1991) article “The threat of unionization, the use of
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debt, and the preservation of shareholder wealth” offers an interesting example along these
lines. The current slate of airline bankruptcies has permitted many of them to renegotiate
contracts on favorable terms and possibly playing unions off on one another. Kale and
Shahrur provide some direct evidence although the empirics are a bit advanced for many
MBAs.
Classroom discussion can also transition into whether financially distressed firms are more
likely to pollute or relax other standards (such as safety). The Noronja and Singal article
“Financial Health and Airline Safety” provide an interesting and short read along these
lines and shows, as predicted, that financial health and safety are inversely related.
We conclude with a discussion of the Sealed Air case.
References
 Wruck, Karen, “Financial Distress, Reorganization, and Organizational Efficiency” in
Journal of Financial Economics, Vol 27, 1990. pp:419-444.
 Opler, Tim. and S. Titman, 1994, “Financial Distress and Corporate Performance” Journal
of Finance 49(3), 1015-1040.
 Graham, John R. and C.R. Harvey. 2001. “The theory and practice of corporate finance:
evidence from the field” Journal of Financial Economics 60, 187-243.
 Patrick, Steven C. “Three pieces to the capital structure puzzle: The cases of Alco
Standard, Comdisco, and Revco” Journal of Applied Corporate Finance Vol. 7, No. 4
(Winter 1995), pp. 53-61.
 Bronars, S. and D. Deere, 1991. “The threat of unionization, the use of debt, and the
preservation of shareholder wealth” Quarterly Journal of Economics 56, 231-254.
 Noronha, Gregory and V. Singal, 2004, “Financial health and airline safety” Managerial
and Decision Economics 25, pp. 1-16.
 Hertzel, M., Z. Li, M.S. Officer, and K.M. Rodgers, 2008, “Inter-firm linkages and the
wealth effect of financial distress along the supply chain” Journal of Financial Economics
87(2), 374-387.
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Module 5: Agency Theory & Governance
Learning Goals
 Understanding the nature of a principal-agent conflict and identify the various conflicts that
exist among the stakeholder of a firm.
 Understand the role of contracting and monitoring in addressing the agency issue and the
challenges that exist for efficient contracting.
Required Readings
 BMA Ch 12.
 Jensen (1986), “Agency costs of free cash flow, corporate finance, and takeovers”.
 Brewer, Chandra, and Hock (1999) “Economic Value Added (EVA): Its uses and
limitations”
 Hall (2003), “Six challenges in designing equity-based pay”.
 Jensen (2003) “Paying people to lie: the truth about the budgeting process.”
 Bryne, John “The best and worst boards” Businessweek Dec, 1997.
 McCafferty, Joseph 2008 “Building an exceptional board” BusinessWeek 4-17-2008.
 Stout, Lynn. 2007. “The mythical benefits of shareholder control”
 Jensen, M., K.J. Murphy, and E.G. Wruck, 2004 “Remuneration: Where we’ve been, how
we got to here, what are the problems, and how to fix them” SSRN paper.
Additional Material
 John Lundgren video of how information asymmetries have effects not only between the
market and the firm, but also within the firm itself. We can talk about manager’s
incentives to cheat one another. This relates closely with Jensen’s article on budgeting.
Pedagogical Purpose and Notes
 This module has four purposes. First, it describes the nature of the agency problem as it
exists between managers and shareholders. Second, it examines the efficacy of the
compensation contract in better aligning the incentives. Third, it examines the efficacy of
the board of directors in addressing the problem. Finally, it maps the agency conflict into
the wider range of contracts among various stakeholders.
 We begin this module with a demonstration of the “traditional” agency conflict between
managers and shareholders using a simple numerical example. I find it a useful extension
to show that the financial consequences on non-manager shareholders of managerial
“shirking” is the same if managers instead direct wealth towards other stakeholders. We
augment this discussion with Jensen’s “Agency costs of free cash flow, corporate finance,
and takeovers”. I primarily focus classroom discussion on the nature of the problem rather
than the market-for-corporate-control solution simply to reinforce the myriad ways that
agency conflicts can manifest. The market-for-corporate-control solution is much more
thoroughly developed in Module 7.
 We next discuss the setting of the compensation contract. We examine the relative
strengths and weaknesses of salary, bonus, option, and stock-based pay. An obvious
advantage to teaching this module after the valuation module is the depth of discussion this
permits for option compensation. The Brewer, Chandra, and Hock article “Economic Value
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Added (EVA): Its Uses and Limitations” provides a fairly concise discussion of EVA.
Similarly, the Hall article “Six Challenges in Designing Equity-based Pay” offers a
thorough examination of problems that can arise with equity compensation. Hall and
Murphy’s article “The Trouble with Stock Options” discusses various theories for the
dramatic rise in the use of options in the 1990s.
It is interesting to then conclude the discussion of compensation with Jensen’s “Paying
People to Lie: The Truth about the Budgeting Process”, as it brings back into the discussion
the complexity of the agency problem (emphasizing the potential intrafirm nature of it),
and discusses the efficacy of a strictly linear compensation formula. This paper could be
discussed earlier as well, but I find that it provides a nice ending to the compensation
discussion and segue into the role of the board.
Alternatively, the lengthy Jensen, Murphy, and Wruck article “Renumeration: Where
We’ve Been, How We Got to Here, What Are the Problems, and How Do We Fix Them?”
discusses most of the compensation issues raised above and, in aggregate, is a shorter read.
We then transition into the board’s role in addressing the agency conflict. I have kept the
readings in this section more modest. We begin with a discussion of what are the roles of
the board, the extent to which agency conflicts also exist with directors, and how might we
evaluate a board’s performance. Students will read one or more of the BusinessWeek
articles on the “Best and Worst Boards”, which are largely similar. I currently use the 1997
version as the discussion of the board characteristics deemed “effective” seems a bit
clearer. More recently (April, 2008), BusinessWeek published an article “Building an
Exceptional Board” that lays out many of the same points and is more current.
Once we outline the characteristics, according to BusinessWeek, of an effective board, we
then go through some of the empirical evidence on which characteristics appear to matter.
I also like to emphasize the non-monitoring role of the board and how recent
NYSE/NASDAQ rules as well as Sarbanes-Oxley, have begun to restrict board
composition. In particular, we discuss the recent Boone, Field, Karpoff, and Raheja “The
Determinants of Corporate Board Size and Independence: An Empirical Analysis” and the
Coles, Daniel, and Naveen “Boards: Does One Size Fit All?” articles (although I do not
have the students read these).
We also discuss the current debate regarding enhancing shareholder power vis-à-vis control
over the board. The Stout article “The Mythical Benefits of Shareholder Control” provides
some interesting insights into the benefits of a board that is insulated from shareholder
whims. In addition to discussing the benefits of informed decision making, he also
describes how powerful boards can alleviate intershareholder opportunism and encourage
firm-specific investments by stakeholders. We return to these topics in the last module.
Additional Talking Points
 What is the difference between a self-serving manager (one who maximizes his/her own
wealth to the detriment of the firm), an incompetent manager, and an unlucky manager?
From an analyst’s perspective, what is the difference? How, if at all, can we disentangle
the three with contracts? Perhaps link this important discussion to Venky Nagar’s
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theoretical piece “The role of the manager’s human capital in discretionary disclosure”
(JAR 1999)2.
What is the role of larger investors, most notably institutional investors? Do markets and
stakeholders benefit from their presence? Does there exist an agency relationship between
large and small shareholders?
Challenge students to define “excess” compensation as it relates to high-profile professions
such as actors, athletes, and executives. Is “excess” an absolute or relative term?
What is the nature of intra-firm information asymmetries and agency problems? How
might competition among managers for scarce firm resources impede executive-level
managers from properly allocating resources within the firm?
What various agency relationships exist related to a firm? Some possible points for
discussion are manager-shareholder, shareholder-bondholder, large-small shareholders,
employees-shareholders, bondholders-employees. What about the government and
environment; are these principals?
Recall the Ken Freeman episode at Corning. Do you think that he could have
accomplished the same outcome by re-contracting with employees (provided more
performance-based pay or, at the other extreme, fired non-performers)? What are the
similarities and differences between motivating executives and non-executives?
What role do stakeholders currently have in corporate governance? To what extent can
increasing the power of shareholders help to alleviate (or exacerbate) the current slate of
problems? This links to the Stout piece that describes the benefits of housing considerable
power in the board and avoiding increased shareholder ability to influence firm decision
making. The “team production theory” described by the author has strong elements of a
stakeholder-focused view of the firm. Paper also provides a quick, usable description of
“duty of care” versus “duty of loyalty” responsibilities of the directors.
Also recall the Graham, Harvey, and Rajgopal (2006) piece, describing survey of 421
CFOs and documenting their willingness to undertake value-destroying behavior in order
to meet earnings expectations or smooth earnings. They also point out the perceived
importance of large institutional investors to CFOs.
References
 Jensen, Michael, “Agency Costs of Free Cash Flows, Corporate Finance, and Takeovers”
in AEA Papers and Proceedings, May 1986. pp:323-329.
 Brewer, Peter C., Gyan Chandra, and Clayton A. Hock, 1999 “Economic Value Added
(EVA): Its Uses and Limitations” SAM Advanced Management Journal Spring, 4-11.
 Jensen, Michael, 2003, Paying People to Lie: the Truth about the Budgeting Process,
European Financial Management Vol 9 (3) 379-406.
 Hall, Brian J. “Six Challenges in Designing Equity-Based Pay” in Journal of Applied
Corporate Finance V.15 #3, Spring 2003.
 Stout, Lynn A. 2007. “The Mythical Benefits of Shareholder Control”, Virginia Law
Review 93, 789-809.
 Byrne, John. “The Best and Worst Boards”, BusinessWeek December, 1997.
This might be a good read for students although it will likely be at the limit of their technical ability. Oliver Kim’s
discussion of paper in the same edition is equally insightful and offers a more condensed presentation of the salient
results.
2
30


McCafferty, Joseph, 2008. “Building an Exceptional Board” BusinessWeek 4-17-2008.
Interview with John Lundgren, Chairperson and CEO of The Stanley Works regarding
communications, mostly internal, during both good and bad times. Discusses, very
general, how this helps to improve corporate bottom line. Suggests more information in
bad times benefits all stakeholders because reduces inclination to assume the worst. HBS
Video 1359FL.
Possible Questions:
a) What kind of assumptions might employees make during bad times?
b) Message seems focused on internal stakeholders; would you expect the
same advice to be true for external stakeholders?
31
Module 6: Payout Policy
Learning Goals
 The irrelevance of dividends and how market imperfections potentially enable dividends to
contain information.
 Repurchases versus dividend payments.
Required Readings
 BMA: CH 16.
 Brav, Graham, Harvey, and Michaely (2005) “Payout policy in the 21st century”.
Pedagogical Purpose and Notes
 This topic is fairly direct and short. Coverage includes basic understanding of the
irrelevance of dividends under perfect market assumptions and how the relaxation of those
assumptions leads to potential importance of payout policy.
 Sequencing this module after the capital structure and agency modules allows students to
work through the implications for dividend policy, in essence, as a classroom exercise. This
also helps students to recall the salient issues in capital structure, and to recognize that
these same issues pertain to payout decisions.
 Once we have developed the various positions on dividends as described in Brealey,
Myers, and Allen, we then discuss actual patterns and incentives as reported by Brav,
Graham, Harvey, and Michaely (2005).
Additional Talking Points
 To what extent can the hording of cash serve stakeholders’ interests and which
stakeholders?
 What is the relation, if any, between capital structure theory and dividend policy? Why
might some firms actually borrow to pay dividends?
 Why might a dividend omission send a more positive signal than a dividend cut? What is
the empirical evidence on this point?
 The Brav et al. (2005) piece provides interesting statistics on the importance of various
payout policy theories on executives for large firms. In addition, the different theories are
briefly described.
References
 Brav, A., J.R. Graham, C.R. Harvey, and R. Michaely (2005) “Payout policy in the 21st
century” Journal of Financial Economics 77, pp 483-527.
32
Module 7: M&A and Corporate Structure
Learning Goals
 Description of the various forms of restructuring and the importance of the market for
corporate control.
 Coverage of traditional economic rationales for M&As, both compelling and not so
compelling.
 Understand the motivations for corporate diversification and the nature of the evidence
surrounding this issue.
 Understand the term “managerial entrenchment”, how this is accomplished, and good and
bad economic rationales for entrenchment.
Required Readings
 BMA Ch 32-34.
 Holmstrom and Kaplan (2001) “Corporate governance and merger activity in the United
States: Making sense of the 1980s and 1990s”.
 Jensen (1986), “Agency costs of free cash flow, corporate finance, and takeovers”
 Fee and Thomas (2004) “Sources of gains in horizontal mergers: evidence from customer,
supplier, and rival firms”.
 Strine (2002), “The social responsibility of boards of directors and stockholders in change
of control transactions: is there any ‘there’ there?”.
 Harford (2003) “Takeover bids and target directors’ incentives: the impact of a bid on
directors’ wealth and board seats”.
 Gompers, Ishii, and Metrick (2003) “Corporate governance and equity prices”
Additional Material
 Veridian Case “Putting Value to Values” HBS Case 9-406-028, provides many teachable
points, including firm’s goal of becoming the employer of choice in the industry and
whether simple financial considerations should determine the merits of an acquisition
decision.
Possible Questions:
a) Teaching note presents the most salient questions.
 A Note on Mergers and Acquisitions and Valuation, Ivey Case 95-B023.
Pedagogical Purpose and Notes
 This module is a bit of a catch-all, as it covers mergers and acquisitions, issues related to
the market for corporate control, corporate structure, diversification, and entrenchment. In
general, I frame this module around the Holmstrom and Kaplan (2001) article “Corporate
Governance and Merger Activity in the United States: Making Sense of the 1980s and
1990s”, which provides an excellent synthesis of the various motivations underlying
merger activity.
 We begin with a discussion of basic forms of restructuring, including spin-offs, carve-outs,
and LBOs. By this stage, students are pretty savvy when asked whether these
33







restructurings will affect value (my personal favorite is “well, they shouldn’t, but since the
companies are doing them, they must!”). We discuss various explanations for why value
may change. Due to time constraints I have kept the outside reading for these topics to a
minimum as the Brealey, Myers, and Allen text addresses them quite well and succinctly.
We next move to mergers and acquisitions. Initially, we examine acquisitions as strictly a
capital budgeting decision (and contrast it with relying on organic growth) including
methods for valuation. “A Note on Mergers and Acquisitions and Valuation” (Ivey Case
95-B023) provides some useful material along these lines.
Within this context, we discuss various explanations for acquisition decisions including
those that enhance and destroy current shareholder value and the fact that M&As often
bring the conflict between shareholders and other stakeholders into the sharpest contrast.
To provide some discussion points, we read the Fee and Thomas article “Source of Gains
in Horizontal Mergers: Evidence from Customer, Supplier, and Rival Firms” and the Leo
Strine article “The Social Responsibility of Boards of Directors and Stockholders in
Change of Control Transactions: Is There Any ‘There’ there?”. There are also several
studies that discuss the impact of takeovers on wages, both executive and non-executive,
with the general consensus that wages decline as a result of acquisitions.
I highlight in this discussion the various conflicts that arise among stakeholders. In
particular, I note that M&As can offer one of the clearest decision points for managers and
the board between their self-interest and that of non-shareholder stakeholders on the one
hand, and the shareholders on the other hand.
We next transition into a discussion of the disciplinary role of takeovers and continue our
discussion of Jensen’s (1986) piece and focus on one particular example of potential
managerial overinvestment: diversifying acquisitions. We discuss how the incentives to
diversify can differ between management (and other stakeholders) and shareholders, and
then examine the nature of the evidence on the impact of diversification on value. Time
permitting, students could read the Berger and Ofek (1995) article and some of their
follow-up work, as well as the criticisms of Campa and Kedia (1999), namely that
acquirers were discounted firms prior to diversifying, and Graham, Lemmon, and Wolf’s
(2000) article arguing that diversified firms are simply different. Belen Villalonga’s SSRN
article “Research Roundtable Discussion: The Diversification Discount” offers some
addition interesting insights into this debate.
We then discuss the disciplinary role of acquisitions, especially in the 1980s. We review
evidence of takeovers on directors wealth, especially as discussed in Harford’s “Takeover
Bids and Target Directors’ Incentives: The Impact of a Bid on Directors’ Wealth and Board
Seats”. This leads to our discussion of management and directors incentives to insulate
themselves from the market for corporate control.
The final topic is the impact of takeover provisions on shareholders’ wealth. We cover each
of the provisions included in the Gompers, Ishii, and Metrick (2003) index. We then
discuss the entrenchment and shareholder interest interpretations of takeover provisions
and the nature of the evidence consistent with each interpretation.
Finally, we conclude with the Veridian case (HBS 9-406-028). This case brings into focus
many of the issues raised in the course and offer students the opportunity to explicitly focus
on a takeover opportunity where impact on various stakeholders are not uniformly
beneficial.
34
Additional Talking Points
 Why might managers become concerned that the market value of their firms do not
immediately reflect, in managers’ opinion, the economic value of the firm? Might not
competitor firms with better information, or at least more timely information, see
undervalued firms as ideal investment opportunities (under-priced assets) and make the
acquisition? Does this serve target firm shareholders’ interests and/or managerial interests?
Can we offer management mechanisms to reduce these concerns, such as antitakeover
devices? Are these mechanisms double-edged swords?
References
 Holmstrom, B. and S.N. Kaplan, 2001. “Corporate governance and merger activity in the
United States: Making sense of the 1980s and 1990s” Journal of Economic Perspectives
15(2), 121-144.
 Jensen, Michael, “Agency Costs of Free Cash Flows, Corporate Finance, and Takeovers”
in AEA Papers and Proceedings, May 1986. pp:323-329.
 Fee, C.E and S. Thomas, 2004, “Sources of gains in horizontal mergers: evidence from
customer, supplier, and rival firms”, Journal of Financial Economics 74, 423-460.
 Strine, Leo E., Jr. 2002. “The social responsibility of boards of directors and stockholders
in change of control transactions: is there any ‘there” there?”, Southern California Law
Review v.75, 1169-1188.
 Harford, Jarrad, 2003, Takeover bids and target directors’ incentives: the impact of a bid on
directors’ wealth and board seats, Journal of Financial Economics 51-83.
 Gompers, P., J. Ishii, and A. Metrick. 2003, “Corporate governance and equity prices”
Quarterly Journal of Economics 118. 107-155.
35
FIN 526 Project
The purpose of this project is to allow you the opportunity to apply some of the concepts/theories
that we are covering to a publicly-traded firm. Some of the assignments will be quite quantitative
(such as packet 1 below), while others are much more qualitative. By the end of the semester, you
must have submitted 4 of the 5 packets. If you elect to complete all 5 packets, I will count the 4
highest grades. Each will be scored out of 10. The length of each packet is your decision. You
should provide sufficient documentation to make your assertions and/or analyses clear, but brevity
is always appreciated. Your target audience is a new member to the board, whom you may
assume to be a savvy professionals but without any particular knowledge of your company.
I am happy to provide preliminary feedback on any packet, but please do not submit “rough”
rough-drafts; this is not a fishing expedition.
Packet 1) Please describe your firm, including a brief history, its industry and current place in the
industry, the nature of the products/services it provides, and what connection, if any, this firm has
to you. What is the current beta for your firm? Is this a levered or unlevered beta? What is the
current unlevered beta for your firm (if different)? What is your firm’s capital structure? What is
the cost of capital for your firm? Please carefully document your sources, calculations, and
assumptions.
Packet 2) Who are the primary stakeholders in your firm? How explicitly are the interests of
stakeholders addressed in your company’s public documents (annual reports, proxy statements,
news accounts)? What are the likely costs of financial distress to your firm (in qualitative terms if
not some quantitative analysis)?
Packet 3) What is a typical project or investment for your company? Please discuss the most
appropriate valuation method for this firm’s capital budgeting. Does your firm possess real
options? How could you begin to analyze the value of any real options that your company may
possess?
Packet 4) Describe the governance structure of your firm. How entrenched are managers? What is
the nature of the compensation policy of your firm vis-à-vis other firms in the same industry (this
can be somewhat general, but some analysis should be done). How would you describe the
primary function of the board for your company? Which stakeholders’ interests are best reflected
in your firm’s compensation policy? What improvements would you suggest to better link
managers’ self-interest to firm value and enlightened shareholder wealth maximization?
Packet 5) What strategies has your company pursued for growth (organic or M&A)? How
diversified is your firm? How does or would your company likely benefit from increased
diversification, or, if already heavily diversified, how would refocusing potentially help your firm?
How has your firm financed its growth? Has the growth of your firm created value? If so, for
whom?
36
Course Modules in Brief - Without Talking Points, Pedagogical Purpose and Notes – More
appropriate For Students
Module 1: Review Fundamental Microeconomics and Financial Management
Learning Goals
 Review basic concepts of time value, project and firm valuation, capital budgeting, riskreward, market efficiency.
 Review market structures, short and long-term equilibrium, competition, normal and excess
profit, barriers to entry, monopolies and monopsonies.
Required Readings
a) BMA CHs 1-11. (review of intro finance course)
b) Goodwin, Neva. “The limitations of markets” Background essay”.
c) Graham and Harvey (2001) “The theory and practice of corporate finance: evidence from
the field” (only read pages 187-209).
References and Additional Readings
(a) Shrieves, Ronald E. and John M. Wachowicz, 2000,”Free Cash Flow (FCF), Economic
Value Added (EVATM) and Net Present Value (NPV): A Reconciliation of Variations of
Discounted-Cash-Flows (DCF) Valuation”, unpublished manuscript, University of
Tennessee.
(b) McAfee, R. Preston, Hugo M. Mialon, and Michael A. Williams, 2003, “What is a barrier
to entry?”, unpublished manuscript, University of Texes, Austin, and Analysis Group Inc.
(c) Graham, John R. and C.R. Harvey. 2001. “The theory and practice of corporate finance:
evidence from the field” Journal of Financial Economics 60, 187-243.
Module 2: Normative Theories of Managerial Behavior
Learning Goals
 Describe the following models
o shareholder primacy
o stakeholder model
o balanced scorecard
o enlightened value maximization
o long-term value primacy
 Describe perfect market assumptions
 Long-term vs. Short-term view of the firm.
 Legal framework for managerial decision making.
Required Readings
a) Winkler, Adam, “Corporate laws or the law of business?: Stakeholders and corporate
governance at the end of history”.
b) Stout, Lynn, 2002, “Bad and not-so-bad arguments for stakeholder primacy”.
37
c) Clement (2005). The lessons from stakeholder theory for U.S. business leaders
d) Barry, Norman, 2002. “The stakeholder concept of corporate control is illogical and
impractical”.
e) Jensen, Michael, “Value Maximization, Stakeholder Theory, and the Corporate Objective
Function”.
f) Graham, Harvey, and Rajgopal (2006), “Value Destruction and Financial Reporting
Decisions”
g) Stout, Lynn. 2005, “New Thinking on “Shareholder Primacy”
h) Bird, Ron, A.D. Hall, F. Momente, and F. Reggiani “What corporate social responsibility
activities are valued by the market?”
Optional
i) Useem and Badaracco “Managerial Duties and Business Law”
j) Eisenberg, Melvin Aron, “Corporate conduct that does not maximize shareholder gain”
k) Tirole, Jean, 2001. “Corporate Governance”
l) Greenbaum, Stuart I., “Corporate governance and the reinvention of finance”.
Module 3: Project Valuation
Learning Goals
 Cover limitations of adjusted weighted average cost of capital
 Introduce APV technique
 Internalization of externalities.
 Overview of financial options including binomial and Black-Scholes valuation techniques.
 Fundamentals of Real Option Valuation
Required Readings
 BMA CH 19-22.
 Luehrman, Timothy A., “Using APV: A better tool for valuing operations”.
 Luehrman, Timothy A., “Investment Opportunities as real options: getting started with the
numbers”.
 Luehrman, Timothy A., “Strategy as a portfolio of real options”
 Copeland, Tom and Peter Tufano, “A real-world way to manage real options”
 Mendonca and Oppenheim (2007), “Investing in sustainability: An interview with Al Gore
and David Blood” May, 2007 (pp11).
 “Assessing the impact of societal issues: A McKinsey global survey” 2007.
Cases
o Tree Values, HBS 9-201-031.
o Plum Creek Timber, HBS 9-801-399.
o What Price Farmed Fish: A Review of the Environmental and Social Costs of
Farming Carnivorous Fish”, written by Michael L. Weber for the SeaWeb
Aquaculture Clearinghouse.
Module 4: Capital Structure
Learning Goals
38



How choice of capital structure can affect the value of assets.
Understand the importance of information asymmetry.
Trade-Off and Pecking Order theories of capital structure.
References
d) BMA Chs 17-18.
e) Graham and Harvey (2001) “The theory and practice of corporate finance: evidence form the
field” (pages 209-243).
f) Wruck (1990) “Financial distress, reorganization, and organizational efficiency”.
g) Opler and Titman (1994) “Financial Distress and Corporate Performance”
h) Hertzel, M., Z. Li, M.S. Officer, and K.M. Rodgers, 2008, “Inter-firm linkages and the wealth
effect of financial distress along the supply chain”
i) Noronha and Singal (2004) “Financial Health and Airline Safety”
j) Patrick, Steven C. “Three pieces to the capital structure puzzle: The cases of Alco Standard,
Comdisco, and Revco”.
Cases
1. Sealed Air Corporation’s Leveraged Recapitalization (A) & (B), HBS 5-295-143.
Module 5: Agency Theory, Governance, Monitoring, and Compensation
Learning Goals
 Understanding the nature of a principal-agent conflict and identify the various conflicts that
exist among the stakeholder of a firm.
 Understand the role of contracting and monitoring in addressing the agency issue and the
challenges that exist for efficient contracting.
References
 BMA Ch 12.
 Jensen (1986), “Agency costs of free cash flow, corporate finance, and takeovers”.
 Brewer, Chandra, and Hock (1999) “Economic Value Added (EVA): Its uses and
limitations”
 Hall (2003), “Six challenges in designing equity-based pay”.
 Jensen (2003) “Paying people to lie: the truth about the budgeting process.”
 Bryne, John “The best and worst boards” Businessweek Dec, 1997.
 McCafferty, Joseph 2008 “Building an exceptional board” BusinessWeek 4-17-2008.
 Stout, Lynn. 2007. “The mythical benefits of shareholder control”
Optional
 Jensen, M., K.J. Murphy, and E.G. Wruck, 2004 “Remuneration: Where we’ve been, how
we got to here, what are the problems, and how to fix them” SSRN paper.
Module 6: Payout Policy
Learning Goals
39


The irrelevance of dividends and how market imperfections potentially enable dividends to
contain information.
Repurchases versus dividend payments.
Readings
 BMA: CH 16.
 Brav, A., J.R. Graham, C.R. Harvey, and R. Michaely (2005) “Payout policy in the 21st
century” Journal of Financial Economics 77, pp 483-527.
Module 7: Market for Corporate Control, Diversification, and Entrenchment
Learning Goals
 Understand the role of M&A as a capital-budgeting device and as a disciplining device (are
these different?).
 Coverage of traditional economic rationales for M&As, both compelling and not as
compelling.
 Understand the motivations for corporate diversification and the nature of the evidence
surrounding this issue.
 Understand the term “managerial entrenchment”, how this is accomplished, and good and
bad economic rationales for entrenchment.
References
a) BMA Ch 32-34.
b) Holmstrom and Kaplan (2001) “Corporate governance and merger activity in the United
States: Making sense of the 1980s and 1990s”.
c) Jensen (1986), “Agency costs of free cash flow, corporate finance, and takeovers”
d) Fee and Thomas (2004) “Sources of gains in horizontal mergers: evidence from customer,
supplier, and rival firms”.
e) Strine (2002), “The social responsibility of boards of directors and stockholders in change of
control transactions: is there any ‘there’ there?”.
f) Harford (2003) “Takeover bids and target directors’ incentives: the impact of a bid on
directors’ wealth and board seats”.
g) Gompers, Ishii, and Metrick (2003) “Corporate governance and equity prices”
Cases
1. Veridian Case “Putting Value to Values” HBS Case 9-406-028.
40
Complete Course References
Assessing the impact of societal issues: A McKinsey global survey” conduct in 2007. (available
online).
Barry, Norman, 2002. “The stakeholder concept of corporate control is illogical and impractical”,
The Independent Review v.VI(4), pp.541-554.
Bird, Ron, A.D. Hall, F. Momente, and F. Reggiani, 2007 “What corporate social responsibility
activities are valued by the market?”, Journal of Business Ethics 76: 189-206.
Brav, A., J.R. Graham, C.R. Harvey, and R. Michaely (2005) “Payout policy in the 21st century”
Journal of Financial Economics 77, pp 483-527.
Brewer, Peter C., Gyan Chandra, and Clayton A. Hock, 1999 “Economic Value Added (EVA): Its
Uses and Limitations” SAM Advanced Management Journal Spring, 4-11.
Bronars, S. and D. Deere, 1991. “The threat of unionization, the use of debt, and the preservation
of shareholder wealth” Quarterly Journal of Economics 56, 231-254.
Byrne, John. “The Best and Worst Boards”, BusinessWeek December, 1997.
Clement, Ronald W., 2005. The lessons from stakeholder theory for U.S. business leaders,
Business Horizons, 48, 255-264.
Copeland, Tom and Peter Tufano, “A Real-World Way to Manage Real Options” in Harvard
Business Review, March 2004, 90-100.
Eisenberg, Melvin A., 1998 “Corporate conduct that does not maximize shareholder gain” Legal
conduct, ethical conduct, the penumbra effect, reciprocity, the prisoner’s dilemma, sheep’s
clothing, social conduct, and disclosure”, Stetson Law Review XXVIII.1, 1-27.
Fee, C.E and S. Thomas, 2004, “Sources of gains in horizontal mergers: evidence from customer,
supplier, and rival firms”, Journal of Financial Economics 74, 423-460.
Goodwin, Neva. “The limitations of markets: Background essay” from CasePlace.org.
Gompers, P., J. Ishii, and A. Metrick. 2003, “Corporate governance and equity prices”
Quarterly Journal of Economics 118. 107-155.
Graham, John R. and C.R. Harvey. 2001. “The theory and practice of corporate finance: evidence
from the field” Journal of Financial Economics 60, 187-243.
Graham, J.R., C.R. Harvey, and S. Rajgopal, 2006. “Value Destruction and Financial Reporting
Decisions” Financial Analysts Journal 62(6) 27-39.
41
Greenbaum, Stuart I., 2006, “Corporate governance and the reinvention of finance”, Journal of
Applied Finance, 16(2), 5-11.
Hall, Brian J. “Six Challenges in Designing Equity-Based Pay” in Journal of Applied Corporate
Finance V.15 #3, Spring 2003.
Harford, Jarrad, 2003, Takeover bids and target directors’ incentives: the impact of a bid on
directors’ wealth and board seats, Journal of Financial Economics 51-83.
Hertzel, M., Z. Li, M.S. Officer, and K.M. Rodgers, 2008, “Inter-firm linkages and the wealth
effect of financial distress along the supply chain” Journal of Financial Economics 87(2), 374387.
Holmstrom, B. and S.N. Kaplan, 2001. “Corporate governance and merger activity in the United
States: Making sense of the 1980s and 1990s” Journal of Economic Perspectives 15(2), 121-144.
Jensen, Michael, “Agency Costs of Free Cash Flows, Corporate Finance, and Takeovers” in AEA
Papers and Proceedings, May 1986. pp:323-329.
Jensen, Michael, 2003, Paying People to Lie: the Truth about the Budgeting Process, European
Financial Management Vol 9 (3) 379-406.
Jensen, Michael, “Value Maximization, Stakeholder Theory, and the Corporate Objective
Function” on SSRN.
Luehrman, Timothy A. “Using APV: A Better Tool for Valuing Operations” in Harvard Business
Review May-June, 1997, 145-154.
Luehrman, Timothy A., “Investment Opportunities as Real Options: Getting Started on the
Numbers” in Harvard Business Review July-August 1998, 51-67.
Luehrman, Timothy A.. “Strategy as a portfolio of real options” Harvard Business Review,
Sep/Oct98, Vol. 76 Issue 5, p89-99.
McCafferty, Joseph, 2008. “Building an Exceptional Board” BusinessWeek 4-17-2008.
Mendonca, Lenny T. and Jeremy Oppenheim, “Investing in sustainability: An interview with Al
Gore and David Blood”, The McKinsey Quarterly May, 2007. (available online).
Noronha, Gregory and V. Singal, 2004, “Financial health and airline safety” Managerial and
Decision Economics 25, pp. 1-16.
Opler, Tim. and S. Titman, 1994, “Financial Distress and Corporate Performance” Journal of
Finance 49(3), 1015-1040.
42
Patrick, Steven C. “Three pieces to the capital structure puzzle: The cases of Alco Standard,
Comdisco, and Revco” Journal of Applied Corporate Finance Vol. 7, No. 4 (Winter 1995), pp. 5361.
Stout, Lynn, 2002, “Bad and not-so-bad arguments for shareholder primacy”, Southern California
Law Review, 75, 1189-1209.
Stout, Lynn A. 2007. “The Mythical Benefits of Shareholder Control”, Virginia Law Review 93,
789-809.
Stout, Lynn. “New Thinking on ‘Shareholder Primacy’”,
http://www.law.ucla.edu/docs/bus.sloan-stout.pdf
Strine, Leo E., Jr. 2002. “The social responsibility of boards of directors and stockholders in
change of control transactions: is there any ‘there” there?”, Southern California Law Review v.75,
1169-1188.
Tirole, Jean, 2001. “Corporate Governance”, Econometrica 69(1), 1-35.
Useem, Jerry and J. Badaracco, Managerial Duties and Business Law, HBS-Case-9-395-244
(note).
Winkler, Adam, “Corporate law or the law of business?: Stakeholders and corporate governance at
the end of history”, Law and Contemporary Problems v.67, pp.109-133.
https://www.law.duke.edu/journals/lcp/downloads/lcp67dautumn2004p109.pdf
Wruck, Karen, “Financial Distress, Reorganization, and Organizational Efficiency” in Journal of
Financial Economics, Vol 27, 1990. pp:419-444.
43