Lectures 7 & 9 Flashcards
(32 cards)
Transparency Benefits
BETTER Liquidity, valuations, relationships
ENHANCED trust, reputation
LOWER volatility, cost of capital
Selective Disclosure
When select market participants are made aware of material/nonpublic info about company ahead of broader market
Martha & ImClone
- tipped by founder to sell shares in biotech company b/c FDA was not reviewing application for cancer drug
Enron
- used accounting loopholes - hid debt, inflated earnings
- SEC investigated - Leo kept debt off balance sheet, pressured auditors to ignore
- enron bankruptcy, 20,000 people lost jobs
securities
financial instruments representing type of financial value - stocks/bonds
Materiality
information that an investor would considerer important when making investment decisions
Stock Market Crash (1929)
insiders sold stocks en masse due to info about business conditions - led to great depression
Securities Act (1933)
oversees security markets integrity - ensures investors receive timely/accurate/complete info before investing
securities regulation
SEC (US and many publicly traded comps)
Canadian Securities Administrators
Provincial securities regulators
Information Asymmetry
When one party has more/better access to info than other parties (insiders could be executive officers/board members/large shareholders)
Disclosure theories
when one side of market believes other has more/better info, then mutually beneficial transactions/relationships are challenged
Signalling Theory
how/why market participants engage in costly/observable behaviour (ie signals) to reduce info asymmetry
Agenda-building theory
practice of sharing info as pre-packaged, lowering cost and increasing consumption
Legal Disclosure
regulated reporting requirements - SEDAR/EDGAR, Press Releases, Official Websites, Open Conference Calls
Why not SM Disclosure
NOT - enough room for detail, promotional (reduces objectivity), lack of governance
NEEDS - SM policy, trained employees, coordinate w/ other channels, balanced/accurate/consistent, need 3rd party monitoring protocols
Forward looking Information
info projecting future expectations/performance - use “safe harbour language” discussing risk factors that could impact
Can be used to manage investor expectations
law/disclosure/strat comms
transparency = trust/credibility
contribute to corp narrative
support w: plain language, consistent disclosure practices, signalling/agenda building
Capital / Investors / Liquidity
C - money, property, assets of value - goal of capital = generate profit
I - essential source of capital
L - ability to buy/sell security quickly/low cost w limited effect on market price
Public v Private
Public - listed on stock x change, more shareholders and liquidity, more access to expensive capital, regulated
Private - not listed, small #, less liquid, limited access to expensive capital, limited info flow
Raising funds
- Reinvest - earnings back into operations
- Borrow - money from banks/lenders to finance growth
- Debt - in the form of selling bonds to investors (Bonds = form of debt that pays interest to owner, safer than stocks)
- Sell - stocks in company to investors (Stocks = security that represents ownership/investment)
NYSE
place to purchase/sell stocks
Mon-Fri, 9:30-4 PM
“market makers” - ensure orderly buying/selling
80% of trading conducted electronically
TSX is Canadian Stock Exchange
Initial Public Offering (IPO) Reasons
- Raise Capital
- Reward early investors
- Incentives for management/employees via stock options
- have stock “currency” for future acquisitions
- Raise company profile
IPO Steps
- EVALUATION of assets/interest by investment bank/
- S-1 Registration (Prospectus)
- Road Show
- File IPO
- Quiet Period (40 days after IPO)
Invester Relations
focus on relationship building with institutional investors/analysts
