corporate governance - gbv.de · pdf fileand the sarbanes-oxley act 45 ... chapter 8 corporate...
TRANSCRIPT
Third Edition
CORPORATE GOVERNANCE
Kenneth A. KimState University of New York at Buffalo
John R. NofsingerWashington State University
Derek J. MohrState University of New York at Buffalo
Boston Columbus Indianapolis New York San Francisco Upper Saddle RiverAmsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto
Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
CONTENTS
Preface xi
About the Authors xv
Chapter 1 Corporations and Corporate Governance 1Forms of Business Ownership 2
Separation of Ownership and Control 4
Can Shareholders Influence Managers? 5
Monitors 6
An Integrated System of Governance 8
International Monitoring 10
Summary 10
j Review Questions 11
Discussion Questions 11
Exercises 11
Exercises for Non-U.S. Students 11
Endnotes 12
Chapter 2 Executive Incentives 13Potential Managerial Temptations 14
Types of Executive Compensation 14
Base Salary and Bonus 14
Stock Options 15
Stock Grants 17
Does Incentive-Based Compensation Workin General? 17
Potential "Incentive" Problems with Incentive-BasedCompensation 18
Problems with Accounting-Based Incentives 18
Problems with Stock Option Incentives 18
The Debate Over Expensing Executive Options 21
i Other Compensation 22
Crime and Punishment 23
International Perspective—CEO Compensation aroundthe World 23
Summary 24
Web Info about Executive Compensation 25
vi Contents
Review Questions 25
Discussion Questions 25 <•
Exercises 25
Exercises for Non-U.S. Students 26
Endnotes 26
Chapter 3 Accountants and Auditors 27Accounting Functions 27
Accounting for Inside Use 28
Accounting for Outside Use 28
Problems That May Occur in Accounting 29
Auditing 29 <
Internal Auditors 29
External Auditors 30
How the Nature of External Auditing Has Evolved Sincethe Late 1930s 32
Accounting Oversight 33
The Changing Role of Accounting—ManagingEarnings 34
From Manipulation to Fraud 35
Auditors as Consultants 38
International Perspective 38
Summary 39
Web Info about Accounting and Auditing 40
Review Questions 40
, Discussion Questions 40
Exercises 40
Exercises for Non-U.S. Students 41
Endnotes 41
Chapter 4 The Board of Directors 42Overview of Boards 43
The Board's Legal Duties 43
Election of Directors 44
Board Committees 45
Board Structure Regulations Imposed by Exchangesand the Sarbanes-Oxley Act 45
What Is a "Good" Board? 47
Independent Boards 48
Contents vii
< Small Boards 48
Board Structure in the United States and aroundthe World 49
Good for the Goose, Good for the Gander? 49
Can Good Boards Lead to Better FirmPerformance? .50
Potential Problems with Today's Boards 51
International Perspective—Boards in Western Europe 54
Two-Tier Boards 54
Board Regulations on Independence 55
Summary 56
Web Info about Boards of Directors 56
Review Questions 56
Discussion Questions 56
Exercises 57
Exercises for Non-U.S. Students 57
Endnotes 57
Chapter 5 Investment Banks and Securities Analysts 59Investment Banking Activities 60
Criticisms of Investment Banks 62
IPO Problems 62
Structured Deals 64
Securities Analysts 66
Quality of Analysts' Recommendations 68
Potential Conflicts of Interest 69! Analysts and the Firms They Analyze 69
Analysts working at Investment Banks 70
Summary 74
Web Info about Investment Banks and Analysts 74
Review Questions 74
Discussion Questions 75
Exercises 75
Exercises for Non-U.S. Students 75
Endnotes 76
Chapter 6 Creditors and Credit Rating Agencies 78Debt as a Disciplinary Mechanism 79
Institutional Lenders as Corporate Monitors 80
viii Contents
' Why Didn't Lenders Raise a Red Flag during the RecentCorporate Scandals? 80
Do Creditors Influence Corporate Governance inBankruptcy? 81
Credit Rating Agencies 82
A Brief Historical Perspective 82
The Ratings 84
Criticisms 86
International Perspective 89
Japan's Main Bank System 89
Creditor Rights around the World 90
Summary 92
Web Info about Credit Rating Agencies 92
Review Questions 92
Discussion Questions 93
Exercises 93
Exercises for Non-U.S. Students 93
Endnotes 93
Chapter 7 Shareholders and Shareholder Activism 95What is Shareholder Activism? 96
Activism by Individual Shareholders 96
Monitoring by Large Shareholders 97
Institutional Shareholders: An Overview 98
Types of Shareholder Activism 100
Shareholder Proposals 100
Contested Election of Directors (Proxy Fights) 103
Shareholders Lawsuits 104
Does Institutional Shareholder Activism Work? 107
Potential Roadblocks to Effective Shareholder Activism 107
International Perspective 109
Summary 109
Web Info about Shareholder Activism 110
Review Questions 110
Discussion Questions 110
Exercises 110
Exercises for Non-U.S. Students 111
Endnotes 111
Contents ix
Chapter 8 Corporate Takeovers: A GovernanceMechanism? 113Brief Overview of Mergers and Acquisitions 115
The Target Firm 116
The Notion of the Disciplinary Takeover 118
Takeover Defenses 120
Firm-Level Pre-Emptive Takeover Defenses 121
Firm-Level Reactionary Takeover Defenses 121
State-Level Anti Takeover Laws 122
Assessments of Takeover Defenses 123
Are Takeover Defenses Bad for the GovernanceSystem? 123
International Perspective 124
Summary 126
Web Info about Mergers and Acquisitions 126
Review Questions 126
Discussion Questions 126
Exercises 126
Exercises for Non-U.S. Students 127
Endnotes 127
Chapter 9 The Securities and Exchange Commission and theSarbanes-Oxley Act 129The Securities Acts 130
Summary of the Acts 131
Organization Structure of the Securities and ExchangeCommission 131
Need for the Acts and the Securities and ExchangeCommission 134
Securities and Exchange Commission Problem Areas 135
Reporting 135
Punishment 135
Securities and Exchange Commission Resources 137
Sarbanes-Oxley Act of 2002 138
The 2002 Act's Effect on Accounting Oversight 139
Public Company Accounting Oversight Board 139
Auditor Independence 139
Corporate Responsibility 140
Enhanced Financial Disclosures 140
Contents
Analysts Conflicts of Interests 141
Securities and Exchange Commission Resourcesand Authority 141
Corporate and Criminal Fraud, Accountability,and Penalties 141
Willthe Act Be Beneficial? 141
Other Regulatory Changes 142
The New York Stock Exchange 142
NASDAQ Stock Market 143
International Perspective 143
Summary 145
WEB Info about the Securities and Exchange Commissionand the Sarbanes-Oxley Act 145
Review Questions 145
Discussion Questions 146
Exercises 146
Exercises for Non-U.S. Students 146
Endnotes 146
Chapter 10 Moral Hazard, Systemic Risk, and Bailouts 148History of Systemic Risk and Bailouts 149
The Financial Crisis of 2007 to 2009 152
Corporate Governance Failures in the MortgageIndustry 154
The Overreliance of Banks on AIG and Credit DefaultSwaps 158
International Perspective 161
Summary 162
WEB Info about Moral Hazard, Systemic Risk,and Bailouts 163
Review Questions 163
Discussion Questions 163
Exercises 163
Exercises for Non-U.S. Students 164
Endnotes 164
Chapter 11 Corporate Citizenship 166Stakeholder View of the Firm 167
Legal Foundations 169
Corporate Social Responsibility 169
Contents xi
Governance and Stakeholder Theory 172
Criticisms 172
International Perspective 175
Summary 177
Web Info about Corporate Citizenship 178
Review Questions 178
Discussion Questions 178
Exercises 178
Exercises for Non-U.S. Students 178
Endnotes 179
Index 181