演讲机构问题会计

Lecture2

AccountingandAgencyProblemsJinshuaiHuAssistantProfessorInAccountingInstituteforFinancial&AccountingStudiesXiamenUniversityEmail:TeamProductionWhydoindividualsformteamsorfirms?canproducemoreinateamthantheycanactalonereducetransactioncostsbetterafirmisorganized,alargeropportunitysetithasIndividualsareorganizedbycontracts.TheoryoftheFirmThefirm:Anexusofasetofcontractingrelationships

(Coase1937;JensenandMeckling1976).Coase(1937):atheoryoftransactioncosts.Theagencyrelationshipisacontractunderwhichoneormorepersons(theprincipal)engageanotherperson(theagent)toperformsomeserviceontheirownbehalfwhichinvolvesdelegatingsomedecisionmakingauthoritytotheagent.Inthesimpleagencytheorymodel,thefirm’sowners(principals)hiremanagers(agents)anddelegatethefirm’sday-to-dayoperatingdecisionstothemanagers.Contractualrelationsarenotonlywithshareholdersandmanagers,butalsowithemployees,suppliers,customers,creditors...Principal-agentmodeloffirmtheoryPrincipalsarefirmownersormanagersAgentsaremanagersoremployeesAgentsperformfunctionsforprincipalsNumerousprincipal-agentrelationshipsexistinfirmsAgencyProblemsThegoalsofbothmanagersandshareholdersaretomaximizetheirownutility:forshareholders(thefirm),tomaximizeshareholderwealth(firmvalue)??formanagers,tomaximizetheirspersonalutility.Asautilitymaximizer,theagentwillnotalwaysactinthebestinterestsoftheprincipal,generatingagencyproblemsAgencyCostsandManagerialExpropriationsEmpireBuilding(Over-Investment):Growthbeyondwhatisoptimalforthefirmandbeyondwhatmaximizesshareholderwealth.ButalsonodownsizingandnoreturnofFreeCashFlow(cashflowthatisnotneeded)toshareholdersCorporatePerks/ManagerialShirking:tobuy,e.g.,corporateaircrafts,thieve/expropriatethefirm.RiskAversion:totakelow-riskprojectsShort-termbehavior(Horizonproblem):managersprefertofocusonshort-termperformancewithintheirtenureratherthanlong-termgrowththatleadstoshareholderwealthmaximization:e.g.,R&Dexpenses6HorizonproblemThesituation:Themanagerexpectstoretireinthreeyears;spend$100,000onprocessimprovementsthisyearandnextyearwhichwillyield$150,000ofcostsavingsforeachofthefollowing4years;afixedsalaryplus5percentofhisdivision’sprofitsTheoryoftheFirmWhyarebothmanagersandshareholderswillingtodoso?Anentrepreneur,oramanager,raisesfundsfrominvestorseithertoputthemtoproductiveuseortocashouthisholdingsinthefirm.Thefinanciersneedthemanager'sspecializedhumancapitaltogeneratereturnsontheirfunds.Themanagerneedsthefinanciers'funds,sinceheeitherdoesnothaveenoughcapitalofhisowntoinvestorelsewantstocashouthisholdings:Byseparatingthefinanceandmanagementfunctions,thecorporationcreatesaninvestmentvehicleforraisingpoolsofcapital.8SolutionstoAgentProblems9Incentives—aligningexecutiveincentiveswithshareholderdesires.Monitoring—settingupmechanismsformonitoringthebehaviorofmanagers.GroupDiscussion

Gong-FenSolutionstoAgentProblems11Incentives—aligningexecutiveincentiveswithshareholderdesires.Monitoring—settingupmechanismsformonitoringthebehaviorofmanagers.Howtomonitor managementbehavior?Decision-MakingProcessStepsinthedecisionprocessInitiationRatificationImplementationMonitoringExample:BuildingaNewPlant

1.

Initiation:

Divisionmanagerswithspecializedknowledgeofproductionprocessinitiateconstructionproposal.2.Ratification:

Proposalisanalyzedbyspecialistsinfinance,marketing,andotherareas.Seniormanagementusesallthisinformationtodecidewhethertoaccept,rejectormodifyproposal.3.Implementation:

Employeesandoutsideagentsconstructfacilities.4.Monitoring:

Internalaccountantspreparefinancialreportsonproject.Decision-MakingProcess？？TheDecision-MakingProcessRule1:SeparationofmanagementandcontrolFirmsoftenseparatedecisionmanagementfromdecisioncontrol,andmayevenseparateallfourdecision-makingsteps.Why? tocontrolmanagerialagencyproblems.ManagementandcontrolarenotseparatedwhenitistoocostlytoseparatethemTheDecision-MakingProcessRule2:theroleofknowledgeAllocatedecisionrightstoindividualswithspecificknowledgeofhowbesttousearesourceWhy??ItisexpensivetotransferknowledgeIdiosyncratic:particularcircumstancesoftimeandplacee.g.,skillsorpreferencesofpeople,specificsofmachinesScientific:generalrulesofcauseandeffectrelationse.g.,productdesignanddevelopmentTheEconomist,April6,2002issue,page10Themeaningofthehandpose…Accounting’sRoleinthedecisionprocessAccountingreportsaremoreusefulfordecisioncontrol(ratifyingandmonitoring)thanfordecisionmanagement(initiationandimplementation).Thusaccountingmitigateagencyproblems.Decisionmanagementrequiresforward-lookinginformation,butaccountingdataisprimarilybackward-lookinghistoricaldata.

AccountingdataareoftencriticizedasnotbeingusefulfordecisionmanagementWhoaretheMonitors?Figure1.121ShareholdersOwnershipStructureofU.S.Firms2219702002Whomonitormanagers?Shareholders:Dispersedownershipmagnifiesthiscorporategovernanceproblembecauseofacollectiveaction/freeriderproblemamonginvestorsFreeRiderProblem:SmallinvestorshavenoincentivetoengageincostlymonitoringsincetheyarecoveringthefullcostsoftheiractivitiesbutreceiveonlyaverysmallfractionofthebenefitsiftheyaresuccessfulTheUSSystem:DispersedShareholdersThecentralproblem:aproblemofcontrollingmanagement:whomonitorsmanagementtoensurethattheyusetheirexpertiseanddiscretiononbehalfofshareholders,notthemselves?24Ownershipstructure aroundtheworld(Claessens,Djankov,Fan,andLang,JF2002)OwnershipStructureofWesternEuropeanCorporations(FaccioandLang,2002)LargeShareholdersBenefits:Theyhavetheincentiveto

collectinformationandmonitor

themanagement,therebyavoidingthetraditionalfreeriderproblem.theyhasenoughvotingcontroltoputpressureonthemanagementinsomecases.Themostdirectwaytomitigateagencyproblemsderivedfromseparationofcontrolfromownershipistoconcentrateshareholdings.substantialminorityownershipstakes,suchas10or20percent,andeven51ormorepercentownership.particularlyincountrieswhereinvestors’rightsarepoorlyprotectedTheCostsofLargeShareholdersUndiversified

investmentriskforlargeshareholdersWhy??Type-IIagencyproblems

largeinvestorsrepresenttheirowninterests,notcoincidewiththeinterestsofotherinvestors,employeesandmanagers.Theyoftenusetheircontrolrightstomaximizetheirownwelfare,attheexpenseofotherinvestorsandemployees.afundamentalprobleminpoorinvestorprotectioncountriesInU.S.andU.K.largeshareholdingsarerelativelymon.Incountrieswhereinvestorrightsarepoorlyprotected:ownershipconcentrationcanbeaneffectivearrangementforinvestorstoprotectthemselvesfrommanagerialexpropriations.legalprotectionofinvestorsandconcentrationofownershipascomplementaryapproachestogovernance.HowaboutOwnershipStructureofChinesefirms?LargeShareholdersOwnershipStructureofChineseFirmsSAMB

指国有资产管理机构控股的上市公司（18.5%）;SOECG指中央直属国有企业控股的上市公司（13.7%）;SOELG

指地方所属国有企业控股的上市公司（50.1%）;PRIVATE

指私有产权控股的上市公司。这里的国有资产管理机构都是地方所属的（20.3%）,目前还没有中央一级国有资产管理机构直接持有上市公司股份的现象。Blockholderisdefinedasshareholdersthathold,directlyorindirectly,5%ormoreofthetotaloutstandingsharesofafirm.

(Chen,FirthandXu,JBF2009)MonitoringinU.S.firmsOwnershipStructureofU.S.Firms3319702002TheUSSystem:DispersedShareholdersThecentralproblem:aproblemofcontrollingmanagement:whomonitorsmanagementtoensurethattheyusetheirexpertiseanddiscretiononbehalfofshareholders,notthemselves?34CorporateBoardsasMonitorsCorporateBoardsBoardsofdirectors:mostimportantmonitoringdevicetomonitormanagement(Fama1980;FamaandJesen1983).Boardsofdirectorsarearguedtorepresentshareholders’interest.Boardshavesomeimportantcontrolrights,andapprovemajorbusinessdecisionsandcorporatestrategyTheyareinchargeofCEOselection,executivecompensation,andauditsTheycanalsoofferadviceandconnectionstomanagementExample:CompositionofUSBODSource:BoardPractices/BoardPaybyInvestorResponsibilityResearchCenter,2004SomeDataandFactsSomeDataandFactsSomeDataandFactsSomeDataandFacts4142Thenegativecoefficientonthesquareoffirmagesuggeststhattheimpactofageonboardsizeincreasesatadecreasingrate.ProxiesformonitoringandadvisingcostsIssuesrelatedwithcorporateboardsExecutivesusuallyhaveinformationadvantageForexample,Jensen(1993,p.864):“Seriousinformationproblemslimittheeffectivenessofboardmembersinthetypicallargecorporation.Forexample,theCEOalmostalwaysdeterminestheagendaandtheinformation

giventotheboard.Thislimitationoninformationseverelyhinderstheabilityof(thedirectors)...tothemonitoringandevaluationoftheCEO...”IssuesrelatedwithcorporateboardsDependency:managementhasconsiderableinfluenceoverthechoiceofboardmembersManycountriesintroducedrequirementstoincreasethenumberofindependentdirectors(independentfromtheCEOand/orfromlargeshareholders)Directorsoftenhaveverysmallfinancialstakes:Theyhavenoincentivestomonitor,particularlyforindependentdirectors.Commoncriticismofboards:A“rubber-stampassembly”WhowereEnron’sBODs?RobertBelfer

Chairman,BelcoOil&GasCorporation

Sharessold:2,065,137;Grossproceed:$111,941,200

RobertJaedicke

AuditCommitteeChair

Professorofaccountingemeritusandformerdean,graduateschoolofbusiness,StanfordUniversitySharessold:13,360;Grossproceed:$841,438JohnDuncan

Formerchairman,executivecommitteeofGulf&WesternIndustriesSharessold:35,000;Grossproceed:$2,009,700NormanBlake

PresidentandCEO,Comdisco.FormerCEOandsecretarygeneral,USOlympiccommitteeSharessold:21,200;Grossproceed:$1,705,328CaseStudySkyAir,Inc.FirmValuation

salesoperatingexpensesebityear

amountgrowthamountgrowthamountgrowth-919872,250

1,750500-819884,5003,5001,000-719899,0007,000200012,2502,750-5199122,50017,500500022,7507,250-3199336,00028,8757,125-2199442,20033,2508,950-1199548,60038,50010,1000199653,00043,7509,250

FirmValuation

salesoperatingexpensesebityear

amountgrowthamountgrowthamountgrowth-919872,250

1,750

500

-819884,500100.00%3,500100.00%1,000100.00%-719899,000100.00%7,000100.00%2,000100.00%-6199015,00066.67%12,25075.00%2,75037.50%-5199122,50050.00%17,50042.86%5,00081.82%-4199230,00033.33%22,75030.00%7,25045.00%-3199336,00020.00%28,87526.92%7,125-1.72%-2199442,20017.22%33,25015.15%8,95025.61%-1199548,60015.17%38,50015.79%10,10012.85%0199653,0009.05%43,75013.64%9,250-8.42%FirmValuation

salesoperatingexpensesebityear

amountgrowthamountgrowthamountgrowth-919872,250

1,750

500

-81988