Stream II - Lecture 1

Question 1

Why is there no full corporate disclosure?

Answer 1

Although managers have an incentive to disclose private information (for example to reduce shareholder uncertainty to get a lower cost of capital) they also have an incentive to withhold this information.

Firstly, producing information is costly. Secondly, if they release all information this may reduce their competitive advantage and hence there is no full disclosure.

Question 2

Why is business strategy analysis important?

Answer 2

• To understand the influence of the economic environment on firm performance at a qualitative level
• To identify key profit drivers and key risks
• To assess how strategic choices translate into value creation (or destruction)

Question 3

What are Porter’s Five Forces?

Answer 3

• Rivalry among existing firms in industry
• Threat of new entrants
• Bargaining power of buyers
• Threat of substitute products
• Bargaining power of suppliers

Question 4

What does the bargaining power of buyers depend on?

Answer 4

• Price sensitivity

- Relative bargaining power

Question 5

What is the limitation industry analysis?

Answer 5

• Industries do not always have clear boundaries so it can be hard to measure activity

Question 6

What are Starbucks’ profit drivers?

Answer 6

• Brand
• Relationships (with employees, suppliers and customers)
• Suppliers (ethical practices)