BUS 320 Lecture Notes - Lecture 2: Capital Market, Moral Hazard, Adverse Selection

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 320
• Professor: Dennis Chung

Document Summary

Information asymmetry: management not disclose all information based on costs and benefits. => efficient capital market hypothesis: market price reflect all infor of company. => not fully efficient capital market = affect access + minimize cost of capital. => human behaviour: management act on their own interest at the cost of other capital market participants. Adverse selection: capital marketplace attract wrong company. Moral hazard: shirk responsibility if nobody is watching, act on own interest at the expense of others. => aggressive accounting: downplay negative, focus on positive (overstate net income. + asset, understate liability + expenses, emphasize on positive events) >< conservative accounting => motivation: performance evaluation, compensation, access to capital market and analyst expectations, meeting contractual obligations. => serious = market collapse => reduce = accounting + internet. Entity-specific aspect of relevance based on nature or magnitude or both => no uniform quantitative threshold. Partnership incorporated business = name = bca (the business corporations act of british.