ADMN 3400H Lecture Notes - Lecture 7: Credit Rating Agency, Sarbanes–Oxley Act, Tobin Tax
30 Mar 2020
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Document Summary
Accountants and auditors: corrupted by consulting contracts. Boards of directors: can be controlled and captured by ceos, possible solution: two-tier boards. Investment banks (and their analysts: corrupted by high fees, bonuses and too big to fail . Credit rating agencies: corrupted by conflict of interest. Share prices are based on expectations of future earnings, not current value of firm. Ceo learn to manage expectations instead of increasing firm value. Big bets: if win, fabulous wealth in form of bonuses; if lose, no loses but just live on salary. Historic: 1930 to 1980 tightly regulated financial industry (e. g. glass-steagall) 2002: sarbanes-oxley act (in response to enron) Government response: no serious reform of regulation (e. g. no tobin tax, glass-steagall not reinstated). Keep track of financial information of the firm; Auditor evaluation crucial: banks, creditors, and others rely on financial statements to get a true idea of business conducted.
