Chapter 2, Financial Markets and Corporate Governance

CG&FA 38:578:538 Assignment 4

Readings:

· Sakai Downloads

· Managed by the Markets: How Finance Re-Shaped America by Gerald F. Davis. Oxford University Press, 2013

· “Chapter 2, Financial Markets and Corporate Governance.” (referred to below as Chapter 2)

· “Chapter 3, From Institution to Nexus: How the Corporation Got and Lost Its Soul.” (referred to below as Chapter 3)

· Notes on Efficient Market Theory and Capital Asset Pricing Model

· A Real Look at Real World Corporate Governance Paperback by David Larcker (Author), Brian Tayan (Author), Michelle E. Gutman (Editor) 2013

· Part 1 and 2 (referred to below as Part 1 and Part 2)

· Go to the following site which contains Walmart’s description of its corporate governance policies and practices

· http://stock.walmart.com/investors/corporate-governance/governance-documents/

· Review the documents on the site including Walmart’s “Statement of Ethics” and the “Corporate Governance Guidelines”

· Go to the following site and download the 2018 Walmart Proxy Statement and review

· http://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx

Assignment:

Upload to the Assignments Folder in Sakai your Answers to Sections A-E. Answers to question should typically be in one to two complete sentences but please provide more detail if context required or the question specifically asks for a more detailed analysis.

Note that the “See Chapter XX” references below direct you to particular readings for answering those questions, but you may use any other resource available (Internet resources, class notes) in your responses.

Assignment 4 is due on Tuesday, April 2

Part A

See Chapter 2

1. What is corporate governance?

2. What is managerialism?

3. What is financial intermediation?

4. What did Berle and Means mean when they argued that the corporation had “destroyed the unity that we commonly call property” and dissolved “the old atom of ownership into its component parts, control and beneficial ownership”?

5. What influence is an investor entitled to over a company when he or she buys shares?

6. What are agency costs?

7. According to the critics of Berle and Means, how did managerial labor markets, boards of directors, and the takeover market all compel corporate managers to pay close attention to their company’s share price?

Part B

See Chapter 3

1. Describe the three eras of the corporation in the 20th century.

2. Who were the stakeholder under managerial capitalism and how did management respond to each stakeholder group?

3. Why did managerial capitalism decline?

4. What are the implications of the goal that the ultimate purpose of the corporation was “to create shareholder value?”

Part C

See Part 1

1. Did Lehman Brothers have an effective qualified board of directors before its collapse?

2. Do existing CEOs of other corporations make the best qualified members of a board of directors?

3. Does failure in a prior venture ‘taint’ an individual and mean they should be less likely to hold a board position in the future?

Part D

See Part 2

1. Based on the assessments of GAAP in Part 2, provide 3 observations on what is wrong with GAAP from an investor’s perspective in assessing a company’s financial performance

2. Did the Royal Dutch Shell analysis provided in Part 2 indicate a failing of a particular corporation or was it a broader problem relating to corporate governance as a whole?

Part E

See Notes on Efficient Market Theory and CAPM

1. What does Efficient Market Theory mean?

2. Describe the differences between the three classes of Efficient Market Theory

3. Which theory is correct (this question doesn’t have a correct answer – I’m looking for your opinion)

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