A Study of Alignment between Management and Shareholders on China Financial Firms
This study empirically examines the relationship between corporate facilitate the creation of shareholder value through management of the corporate affairs. Agency relationship: the relationship between shareholders and management exists whenever principal hires agent to represent his or her interests. The conflict between managers and shareholders arises from two sources, namely, the . a security;26 some stocks are more volatile than others in relation to the market . the empirical studies, see S. REID, supra note 3, at But see.
A detailed literature study was performed on the value-creation process that takes place in a company. The literature study has a significant focus on Value-Based Management and the elements that should be considered when evaluating the manner in which companies create shareholder value through the operational activities that are performed. Through applying the principles of value-based management, the management of companies should maximise the value-created for shareholders by utilising company resources in the most effective and efficient way possible.
Valuebased management should not be seen as a once-of initiative, but should be ingrained in the day-to-day operating and management activities of companies. The objective of applying value based management principles in a company should be to enhance the value of financial assets through the optimisation of the real assets of the company.
Value is created in a company when the company can maintain a return on capital that is greater than the cost of capital.
Through the literature study several value-drivers were identified that influence the shareholder value-creation process and that should be managed optimally. These value-drivers have been identified to be 1 sales growth, 2 cash profit margin - earnings before interest, tax, depreciation and amortisation EBITDA3 cash tax rate, 4 working capital, 5 capital expenditure, 6 WACC- the risk and inflation adjusted weighted average cost of capital, and 7 the competitive advantage period.
The competitive advantage period is defined as the time during which a company has a positive net present value when discounted at the WACC. Any actions that the management of a company can take to optimise these value-drivers will have a positive effect on the value created for shareholders.
The link between shareholder value-creation and share-price was investigated in the literature study. It was found that different factors influence share prices and that some have nothing to do with the company itself, but more with investor sentiment about the economy as a whole and other socio-political factors.
The empirical study was based on analysing key value-drivers and financial ratios that were identified during the literature study, in order to establish the relationship between company value-creation and the share-price.
A scale established by decree determines the amount of the fee, depending on the volume of work to be done and taking into account the size of the company and the complexity of the audit to be performed.
Auditing standards also require consideration of the capital structure, but what is the importance of this particular criterion for audit fees? In addition, auditors aim to protect shareholders, and their findings may lead to legal action if the latter feel aggrieved.
Do fees take into account this legal risk?
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Are they the result of a negotiation or a calculation of the cost of work added to a risk premium? Shareholders want to maximize the value of their shares, and managers their salaries and personal benefits, and these differences of interest can be sources of conflict. Even between shareholders, divergences are possible. Majority shareholders can have access to information about the company that can enable them to benefit at the expense of minority shareholders.Difference between shareholder and stakeholder explained in 2 mins
In Anglo-Saxon countries, regulated by case law, investors do not hesitate to prosecute majority shareholders and managers who try to wrong them. This is more rare in civil law countries such as France.
Audit fees: What is the influence of shareholders? | HEC - Knowledge
Where the risk of prosecution is low, audit fees seemingly could not apply a risk premium. But is this really the case in France? And when leaders are shareholders, fees do not decrease, although there is no longer a divergence of interest and the audit is facilitated.