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FIN 555: Financial Markets and Employees

Contents
The organization of markets has changed significantly in recent decades. Trans­action costs in capital markets have declined, and now provide firms with much better access to private equity, venture capital, and tailored financial products. Product markets have internationalized and resulted in more complex and widely distributed supply chains. And labor markets have been affected by the trend toward the gig economy and firms’ increased reliance on innovation and intangible assets. The last aspect is key because we need to ask how firms can develop a sustainable competitive advantage in a setting in which their key assets are employees. All these developments significantly influence the management, owner­ship, financing, and organization of firms, while also bearing crucial implications for stakeholder interests and economic inequality.
This course surveys and discusses recent findings on the interface between financial markets and employees. Much of the textbook discussions in various subfields of business and economics are still based on traditional paradigms, which view firms as collections of physical assets that generate cash flows, and which see financial markets as mainly occupied with valuing and distributing these cash flows. Yet, recent research has moved on from this paradigm and acknowledges the secular shift of market economies toward intangible capital. The new paradigm recognizes that this traditional conception is in serious need of overhaul, and needs to incorporate the increased role of human capital in corporations and the shift in the balance of power between investors and employees that this development entails. Still, much of this change in thinking and many new findings have not found their way into business education. This course is intended to fill this gap.

Learning outcomes
After successfully completing this course, students should be able to do the following:

  • Assess business situations that affect the labor force and understand what is special about human capital.
  • Analyze the relations­hip between firms' labor force (e.g., commitment to employment insurance, difficulties in attracting and retaining employees, job satisfaction) and how financial markets relate to these decisions (valuation, choice of owner­ship, capital structure).
  • Understand how the markets for key employees (top and middle managers, CEOs, directors, innovators) are organized, and why they sometimes feature skyrocketing levels and complex structures of compensation.
  • Evaluate how financial trans­actions like buyouts, mergers and acquisitions, and recapitalizations affect employees and the composition and compensation of firms' labor force.
  • Assess the composition of the workforce, and when diversity of skills and opinions is useful and when it is harmful for decision-making and firm value.
  • Develop a toolbox of theoretical concepts relevant to analyzing human capital issues (and beyond).
  • Gain a sound knowledge of empirical facts that are not yet available in a comprehensive written textbook or survey format.
  • Ground ethical discussions of firms' human resource policies in a sound understanding of theory and empirical facts.

Necessary prerequisites

Recommended prerequisites
The course requires cross-disciplinary thinking and understanding of key concepts in accounting, finance, economics, and management at the level of the respective courses in the Master’s curriculum. The course will introduce key theoretical concepts in economics (e.g., signaling, hold-up problems, principal-agent relations, etc.). No prior knowledge of these concepts is assumed, and all requisite tools from game theory and microeconomics will be introduced at a relatively informal level. However, tolerance for handling abstract concepts is required.

Forms of teaching and learningContact hoursIndependent study time
Lecture2 SWS4 SWS
ECTS credits3
Graded yes
Workload90h
LanguageEnglish
Form of assessmentwritten exam (90 min, 75%); group project (25%)
Restricted admissionno
Further information
Examiner
Performing lecturer
Prof. Maug hat kurze graue Haare und trägt ein dunkelblaues Jacket mir hellblauem Hemd und grüner Krawatte.
Prof. Ernst Maug, Ph.D.
Prof. Ernst Maug Ph.D.
Frequency of offeringSpring semester
Range of applicationM.Sc. MMM, M.Sc. WiPäd, M.Sc. MMFACT
Preliminary course work
Program-specific Competency GoalsCG 1, CG 4
LiteratureMuch of the material presented in this class is new and has either been published recently or has not even reached the publication stage at this point. In addition, the material cuts across disciplines. As a result, there is no textbook or other monograph treatment. The following textbook provides an excellent treatment of the established theoretical concepts, but it has been written before several of the developments that form the core material of this class:
Milgrom, Paul R., and John Roberts, Economics, Organizations and Management (Prentice Hall, New Jersey), 1992.
Further theoretical developments in the academic literature are mostly too technical and these concepts will be communicated extensively in the lectures and, if necessary, through teaching notes.
The classes will provide guidance to empirical studies and how to read them, and course participants will be asked to read selected (mostly non-technical) passages from empirical studies. Key statistical concepts will be introduced in class, and understanding and interpreting such empirical studies is one of the learning goals of this course.
Course outline1 Overview and trends Part I: Markets and the organization of human capital 2 Empirical methods 3 Internal organization of the firm 4 Financial markets: How do investors look at employees? Part II: Markets for talent and key employees 5 The level of CEO compensation 6 Incentives and the structure of executive compensation contracts 7 Non-executive employees and inequality Part III: Restructuring 8 Buyouts and bankruptcies 9 Mergers and acquisitions
10 Health and ethical issues