
Corporate Governance
Order Instructions:
For this paper, it is critical that the writer clearly respond to the four main points listed in the questions. the paper must be detailed and concise, and the writer must pay attention to grammatical errors and APA formatting which will be to follow the 6th edition . Resources are also included at the end of the questions to assist the writer in getting the material needed to write this paper.
Corporate Governance
One of the most significant debates about corporate governance centers on whether the organization owes a greater responsibility to the shareholder who has invested in the company or to the stakeholders and those who can most be affected by its actions, namely the employees, suppliers, creditors, and customers.
After reviewing the resources for this week, respond to the following:
• Use the Internet to research alternative goals for shareholder wealth maximization.
• Identify countries with goals that differ from the U.S. or countries that are home to firms that have differing goals from those based in the U.S.
• Compare and contrast the difference between stakeholder focus goals versus shareholder focus goals.
• What are potential problems with both?
Resources to be use for this paper.
• Readings
Course Text
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate finance (10th ed.). New York: McGraw-Hill Irwin.
Chapter 1, “Introduction to Corporate Finance”
This chapter introduces some of the basic ideas in corporate finance; namely, capital budgeting, capital structure, and cash flows. In addition, there is a discussion on maximizing the value of stock, one of the most important concepts in finance.
Chapter 2, “Financial Statements and Cash Flow”
This chapter introduces and discusses basic corporate accounting procedures, as well as devices used to calculate a corporation’s cash flow from operations, changes in fixed assets, and changes in working capital.
Articles
• Adams, S. (2008, February). Fundamentals of business economics. Financial Management (UK), 46–48. Retrieved from Business Source Premier Database.
This article provides an analysis of the principal-agent problem and discusses some of the ways that many companies address the issue.
• Rappaport, A. (2006, September). Ten ways to create shareholder value. Harvard Business Review, 66–77. Retrieved from Business Source Premier Database.
In this article, the author states his belief that there are certain principles that when followed will result in increased shareholder value for a company. He provides a review of the 10 steps he has found to be most important and provides a brief description of each.
• Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783. Retrieved from Business Source Premier database.
The authors use a survey instrument to study how financial suppliers use corporate governance to assure that they receive a return on their investment.
• Almazan, A., Banerji, S., & DeMotta, A. (2008). Attracting attention: Cheap managerial talk and costly market monitoring. Journal of Finance, 63(3), 1399–1436. Retrieved from Business Source Premier database.
This article presents a new theory as to the best way to increase shareholder value by seeking market attention while the firm is undervalued.
SAMPLE ANSWER
There are a number of goals for shareholder wealth maximization. One of the reasons for shareholder wealth maximization is to increase their wealth and to attain a high market value of their shares (Adams, 2008). In addition, shareholders wealth maximization can be done with the aim of increasing shareholder expectations, leading to reduced conflicts between the management and the shareholders. These conflicts arising among the shareholders may be as a result of directors managing money with less care since it is not their own. Companies can address this issue by encouraging the directors and managers involved in the shareholder business to take note and interest on all matters arising from various interest groups to restore and maintain sanity (Shleifer &Vishny, 1997).
Rappaport (2006) argues that countries differ from one another in matters related to corporate social responsibility. In the United States,the shareholders are more protected by the means of an extensive system of rules that ensure that the rights of the shareholders and the stakeholders and protected accordingly. Germany and Japan had different goals as compared to those of the United States; whereby, they aimed at shaping their banks to be more powerful financial instruments with the capability of driving the economy. The issue of the type of the large investors in the country is also what contributes to making of profit by the financial suppliers with the aid of corporate governance. Large companies are incorporated to adopt the corporate laws that serve the interest of the shareholders and this contributes to the use of corporate governance inorder to gain profit.
Since shareholders and stakeholders forms different groups of people in a company, the views and aspirations concerning the company may slightly differ (Ross, Westerfield, & Jaffe, 2013). Unlike the stakeholders, shareholders are more concerned with the economic activity of their business thereby only seeing an organization in profitable terms and as instruments of its owners. On the other hand, the stakeholders of a business are more concerned with the social responsibility and demand that the business server the interest of all parties. The problem with shareholders focus is that it neglects the dreams of other interest groups of the business while the problem with stakeholders focus is that it may result into low profitability due to overindulgence in social affairs. When the firm is undervalued, there are three methods of seeking to increase shareholder value with the aid of market attention and they include the presence of managerial agency that the shareholders must addressto be able to achieve positive results (Adams, 2008). The ability of market speculators to produce additional information about the firm at a cost is another method for seeking to increase the shareholders of different companies.
Almazan, Benerji & Demotta (2008) argues that there are some ten principles when followed well will result into increased shareholder and one of them is when one does not manage earnings or provide earnings guidance. This is important because organizations only comprise value when they invest at rates below the cost of capital. A company should also make clear strategic decisions that will help in maximizing of the expected value, which is the weighted average value for a range of plausible scenarios even if it’s at the expense of lowering near-term earnings. Cash should be returned to the shareholders even when there are no credible value-creating opportunities to be able to invest in the business since this will help result to increased shareholders (Mallin, 2013). Senior executives and CEOs of companies ought to be rewarded so that they can continue delivering quality services that will help lead to increased shareholders. A company also has the responsibility of rewarding executives of the operating-unit for being able to add superior multiyear value and the middle managers for having delivered superior performance that influences the increase of shareholders directly. In order to bear the risk of ownership, a company requires senior executives to do so and by the provision of investors with value relevant information, there will be increased shareholder in the company
References
Adams, S. (2008). Fundamentals of Business Economics. Financial Management (UK), 46–48. Retrieved from Business Source Premier Database
Almazan, A., Banerji, S., & DeMotta, A. (2008). Attracting attention: Cheap managerial talk and costly market monitoring. Journal of Finance, 63(3), 1399–1436. Retrieved from Business Source Premier Database
Mallin, C. (2013). Corporate Governance. Oxford University Press; 4 edition
Rappaport, A. (2006). Ten ways to create shareholder value. Harvard Business Review, 66–77. Retrieved from Business Source Premier Database
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate finance (10th Ed.). New York: McGraw-Hill Irwin.
Shleifer, A., &Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783. Retrieved from Business Source Premier Database
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