BAEcon Economics and Data Analytics

Topic 1: Separation of Ownership and Control
This topic introduces the idea of looking at the firm as a nexus of contracts. It also presents the advantages of dispersed ownership and the problems associated with the separation of ownership and control. In addition, it highlights the difficulties in identifying the optimal ownership concentration level.

Topic 2: Information Asymmetry, Moral hazard and Adverse Selection
This topic explains the concept of information asymmetry.  In particular, it explains how the asymmetry is created, emphasising the three main types: private pre-contractual information (first type of adverse selection), private post-contractual information (second type of adverse selection) and private (effort) choice information (the moral hazard problem).

Topic 3: Complete Contracting
This topic concentrates on Agency and Tournament Theories. Special attention is paid to the explanation of the basic principal-agent model together with its extensions, i.e. multi-task, multi-agent and three-tier models. Finally, the basic concepts of Tournament Theory are highlighted.

Topic 4: Incomplete Contracting
This topic presents two contemporary theoretical approaches based on the notion of incomplete contracting, namely the managerial power and perceived cost approaches.  The predictions of these theories are compared and contrasted to those of the theories described in the previous topic.

Topic 5: Optimal Contracts and the Role of Incentives
This topic enhances the students' understanding of the process of creating an optimal contract.  The concepts of power and risk sharing are explained, as well as the different ways of creating incentives.  In addition the power of threat to terminate the contract, including the effects on managerial  reputation, is detailed.  Finally, the differences between relative and individual performance evaluation are presented.

Available to students on the following programmes: Mgt/Mgt (Specialism); IM; IMABS, Acctg, IBFE, BAEcon, BScEcon & MathswFinance. Open to other programmes provided pre-req are met. BMAN 23000(A) or (B) is a pre-requisite of BMAN 30702.

Pre-requisite course units have to be passed by 40% or above at the first attempt unless a higher percentage is indicated within this course outline. If the pre-requisite unit is defined as a compulsory course unit within your programme of study (Maths with Finance, IBFE, Accounting, BA Econ pathways for example) then progression onto the dependent unit is permitted as long as you have gained the appropriate amount of credit to progress on to the following year of your registered undergraduate programme.

Pre-requisites: BMAN23000(A) or (B) Foundations of Finance. It is preferred that students have a pass mark of 60% or higher in the pre-requisite BMAN23000(A) or (B) Foundations of Finance course for Corporate Contracting and Managerial Behaviour
 

 

The course emphasises the application and understanding of the theory, tools, and terminology of
corporate governance, from a finance viewpoint. The aim is to provide a greater understanding of the theoretic basis for economic theories of contracting, incentivisation of agents and the structure of financial contracts. The course provides students with a knowledge and understanding of the problems created by the separation of ownership and control, emphasising the concept of asymmetric information and its implications. It also aims to enhance student understanding of the economic theories underpinning Corporate Governance (CG).  In addition, the course highlights the differences between complete and incomplete contracting, as well as the notion of an optimal contract and the role of incentives.

Successful completion of the course lays the foundation for students wishing to pursue further study in the area of Corporate Finance/Governance.  It also provides them with a robust theoretical background that will allow them to better understand practical Corporate Governance problems.  Students should note that the course does not include detailed analysis of specific practical CG problems developed within the UK system. Any examples provided will solely serve the purpose of understanding the theories related to CG.

On completion of this course successful students will:

Knowledge and Understanding
- understand the concept of asymmetric information, focusing on the impact of moral hazard and adverse selection.
- understand some of the economic theories behind Corporate Governance, i.e. Complete
Contracting (Agency and Tournament Theories) and Incomplete Contracting (Managerial Power and Perceived Cost Approach)
- acquire important knowledge on optimal contracting and the role of incentives.

Intellectual Skills
- solve conceptual problems, including the ability to to apply statistical concepts at an appropriate level
- understand how to formulate and test hypotheses
- exercise powers of inquiry, logical thinking, and critical analysis of arguments and evidence
- interpret and evaluate theoretical arguments and empirical evidence
- exercise the capacity for independent and self-managed learning

Practical Skills
- use sources of financial information, including press coverage of business issues, in an informed way
- present quantitative and qualitative information, together with analysis, argument and commentary, in a form appropriate to the intended audience

Transferable Skills
- structure and present ideas effectively in writing
- exercise initiative and self-reliance skills, and work independently
- appreciate alternative viewpoints
- demonstrate IT skills including use of the Internet

Note that specific learning outcomes for each lecture topic will also be given in the lecture notes.

1 or 2 hours of lectures per week
1 hour of workshops for 4 weeks

Lecture Hours: 16
Seminar Hours: 4 (included in the lecture times)
Private Study Hours: 80

Total study hours: 100 hours split between lectures, classes, reading, self-study and preparation for classes, coursework and examinations.

Other teaching staff: To be confirmed
 

Informal Contact Methods
1. Office Hours
2. Online Learning Activities (blogs, discussions, self assessment questions)

2 hour unseen examination (100%)

- Informal advice and discussion during lectures and workshops.
- Online exercises and quizzes delivered through the Blackboard course space.
- Generic feedback posted on Blackboard regarding overall examination performance.
- Informal feedback during weekly run office hours.

There is no recommended text book for this course. The material presented in lectures though is influenced by the following textbooks:

Brickley, J., Smith, C. and J. Zimmerman, 2016. Managerial Economics and Organizational Architecture. McGraw Hill.

Tirole J. 2006. The Theory of Corporate Finance. Princetown University Press.

Bolton, P. and M. Dewatripont, 2005. Contract Theory. MIT Press.

If students wish to purchase a text book then they are advised to get the Brickley/Smith /Zimmerman book. This is the easiest to follow and has good coverage of the topics of the course. Even though several of the topics are based on the material provided in the textbooks, the lecturer will also provide additional references per topic.




 

Pre-requisite course units have to be passed by 40% or above at the first attempt unless a higher percentage is indicated within this course outline. If the pre-requisite unit is defined as a compulsory course unit within your programme of study (Maths with Finance, IBFE, Accounting, BA Econ pathways for example) then progression onto the dependent unit is permitted as long as you have gained the appropriate amount of credit to progress on to the following year of your registered undergraduate programme.

Pre-requisites: BMAN23000(A) or (B) Foundations of Finance. It is preferred that students have a pass mark of 60% or higher in the pre-requisite BMAN23000(A) or (B) Foundations of Finance course for Corporate Contracting and Managerial Behaviour

Co-requisites: None

Dependent course units: None

Programme Restrictions: Available to all BA (Econ), BSc Management and Management (Specialisms), BSc International Management, BSc International Management with American Business Studies and BA/BSc International Business, Finance and Economics students, BSc Maths with Finance, BSc Maths with Business and Management.

BMAN30702 is available to study abroad and exchange students admitted through the University of Manchester International Programmes Office.

For Academic Year 2023/24

Updated: March 2023

Approved by: March UG Committee