Week One: Corporate Governance Theories of f er simply tool to interpret complex phenomena Increased globalisation raising interests of market participantsand models to understand problems that arise and predict Single method - increased comparability (arguable), outcomes in some cases. BUT acct is behavioural sciences internal consistency, totals have meaning and basis could & regulators in HQ f i nancial reporting More accurate stock valuation, Reduce risk of misappropriation by insiders & Improve lending & credit evaluation decision & contain the risks of a banking crisis and human behave can never be certain as based on assumptions that don't always hold. be cost or current cost. BUT unlikely to be relevant at all times, current V not relevant if intention is to hold and use. Cost benef it considerations IFRS says no to single method Normative: Contain value judgement and can't be verif i ed cars unlikely to provide the most relevant information in all falsif i ed because it is subjective. Derived through logic circumstances QualityofFSinfluencesbyaccountingregulations, institutional factors ef fect demand/supply, CG and the typedevelop and based on stated object. Often done by govt & legal system and enforcement govern shareholder protection reg - best for everyone - CF e.g. Primary character of U/I: relevant and faithfully rep. Enhancing: comparable, verif i ability, timely and understandable. is in place Positive: why people have certain manner/ predict what person will do. Based on empirical research - data, observation or experience. Start with hypothesis and test GC: system by which comp directed & controlled. Widest sense - framework of rules, relationships, system andthrough observation. processes within & by which auth is exercised and controlled in corps. Verif i able. Dif f knowledgeable and independent observers would be able to reach the same consensus but may not be able to verify some explanations and forward thinking information until future period. PAT: management compensation hypothesis predicts that managers will act to increase income (linked to ef f ort) CG - Legal system - ownership model - investor protection (all linked together). Contracting Theory: organ is charactertised as a legal nexus Lecture Six: Measurement and Products of FR of Ks or as the centre of a Kual relation which contracting US banks bonus pool in 2008 = $32b ?! K theory or PA? Enron and FV: entered a contract with city of Chicago to supply electricity at a predetermined price. Enron sought and obtained exemptions from regulators to allow it report these types of long -term supply contracts as investments Elements: control/direct directors, transparency/accountabilityparties have rights/responsibilities - talent and shareholders Int mech (crtl by SH and board): form of exec comp, structureGov Reponses 2 strikes: if 25% SH @ AGM vote against exe at FV rather than supply contracts. of share ownership and f in agreements, const and membership of the BOD and its committees Ext Mech: monitoring by SH, inst investors, ext auditors, activists and the government/regulators. remun, they must review. 2nd strike 25% at AGM vote against In the absence of any active