Paper #2
Motivation:
This writing assignment deals with chapter 6 of Doug Henwood’s “Wall Street”. The purpose of this reading is to introduce an alternative view of finance than the “textbook” view we are getting in class. In the “textbook” view financing is a bloodless and simple transaction between lenders and savers. However, as Henwood’s book makes clear, the reality is a lot more complicated. Financial arrangements are also arrangements of control and power between lenders and borrowers.
Grading:
The paper should be 3-5 double spaced (12pt font) pages long. The paper should be written in the “five paragraph” style where you have a clear introduction and a clear conclusion and you offer supporting evidence in between.
The question.
Henwood argues that by the 1980s and 1990s finance began to play an increasingly important role in corporate governance. He contrasts the economic theory of the role that financiers play in corporate governance (in particular stockholders) and the reality of how corporate governance worked in practice in the 80s-90s. He focuses on the leveraged buyout (LBO) movement. How did LBOs work? How is the practice different than the theory? Who did they benefit? Who did LBOs harm? Does Henwood view stockholder centric corporate governance as an appropriate or productive way to govern corporations? Why?