Public Company Communications with Equity Investors and Firm Value [chapter]

Silvije Orsag
2018 Firm Value - Theory and Empirical Evidence  
Corporate governance is essentially developed from the characteristics of a public company. In such a company, there is a strict division between entrepreneurship and ownership, which results with agency problem between management and stockholders in asymmetric information's conditions. Therefore, the communication of society is with the investor's public, which is one of the key areas of corporate governance. This is primarily related to existing and potential firm's stockholders, who use that
more » ... lders, who use that information for the assessment of existing, or potential investment. There are many ways of communication. Periodically, the most comprehensive is by using financial reporting. Unfortunately, today's common financial reporting practice are not directed to existing and potential firm's stockholders. Reporting shows business value primary as firm's assets value and stockholders are observing assets as financial potential, and are primary interested in economic value based on expected cash flows and risk reward relationship. Because of that, there are big challenges for the improvement of financial reporting. Furthermore, there are many challenges to improve alternative ways of firm's communication in the areas of main risks exposure of firm's business operation, business strategies, fair approach to investors, etc. All these improvements have significant potential for better assessment of firm's value. business activities from the universal owner-entrepreneurs to the well-educated and welltrained professionals who should perform all of their tasks in the best interests of the owners of such large and complex economic entities. This feature of contemporary economics has been made possible through the transparent and efficient financial market, particularly the capital or, more specific, the stock market. The stock market allowed the generalization of individual and personalized owner's goals and transformed them at a level of the company's long-term stock market values, and the stock market values became the owner's instrument for achieving greater wealth. The separation of ownership and entrepreneurship raises the issue of additional mediation between people because of the entrepreneurship and property rights which were once contained in a single person (i.e., owner), now manifest through the action of the managers as the agents (the principal) working under conditions of information asymmetries. Therefore, one can conclude that the agency problem [1] exists not only in modern public corporations with the relation between the management and the owners, but also within owner interest groups, primarily between small and large shareholders, those who hold significant interests in the company. Agency theory [2] shows how the problem of agents in terms of conflict of interest can lead to specific securities' categories agency cost [3] . The problems of agents and associated information asymmetries have begun to interest the academics and the practitioners in the early twentieth century, especially after the Great Crisis [4] in a framework known as corporate governance.
doi:10.5772/intechopen.76171 fatcat:2sjnse7svrckpkyqi7laen3cia