Week 1 Discussion

Do you think that the owners of a corporation can maximize the object of the firm and satisfy the socially imposed constraints?

There are a plethora of reasons that the owners can maximize the object of the firm and satisfy the socially imposed constraints. First of all, any person has the chance to own part of a corporation. For example as an investor if I believe that a company (Apple) has the ability to grow and be profitable in the future, I can by stock, resulting in ownership in the company. Once I purchase part of Apple I then have the right to vote on important issues which allows myself along with all the other owners to have a say in the direction of the company. This in result allows any owner big or small to have an impact on the object of the firm and prevents the company from neglecting all owners!

In regards to socially imposed constraints on corporations, shareholders (owners) are protected for a variety of reasons. One, shares (ownership in the company) is freely transferable between investors. As long as the company isn’t thinly traded such as companies trading OTTCB it allows the owners of companies to buy or sell their stakes in the company without issue. Not only are the shares free transferable, but shareholders are NOT liable for obligations of the corporation! For example, when ENRON filed for bankruptcy, any shareholders of ENRON were not liable for their accounting scandal, thus eliminating them from being sued. These two features are very important because it allows investors and owners to freely purchase parts of companies with flexibility and they are protected from any legal action that may be taken against the company.

Did the accounting standard rules play any role in the last decade financial crisis? What type of analyses can be done by using financial ratios? Are the accounting data better than