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It is increasingly apparent that the financial value of a firm depends on off-balance-sheet intangible assets. In this article, the authors focus on the most critical aspect of a firm: its customers. Specifically, they demonstrate how valuing customers makes it feasible to value firms, including high-growth firms with negative earnings. The authors define the value of a customer as the expected sum of discounted future earnings. They demonstrate their valuation method by using publicly available data for five firms. They find that a 1% improvement in retention, margin, or acquisition cost improves firm value by 5%, 1%, and .1 % , respectively. They also find that a 1% improvement in retention has almost five times greater impact on firm value than a 1% change in discount rate or cost of capital. The results show that the linking of marketing concepts to shareholder value is both possible and insightful. [ABSTRACT FROM AUTHOR]

This paper addresses whether the adoption of Japanese financial practices by U.S. corporations can be used as a basis for encouraging U.S. managers to promote the interests of their (human) organizations over those of stockholders. An historical overview is provided of how the corporate organization in each country evolved and the corresponding development of managers' responsibilities to the corporate organization versus shareholders. These concepts are then examined within the context of each country's contemporary corporate financial structure and the corresponding financial responsibilities of managers to the corporate organization versus shareholders A discussion is then provided of whether the values embodied in each system would affect the ability of the United States to encourage a more "corporate-oriented" ethic to its managers by adopting Japanese financial practices. [ABSTRACT FROM AUTHOR]

Internal, organizationally based mechanisms of corporate control and external, market-based control mechanisms can be employed to help align the diverse interests of managers and shareholders. After reviewing the related work in organization theory and financial economics, this paper articulates the strengths and shortcomings of both types of control mechanisms; it also identifies a variety of managerial entrenchment practices that managers can use to compromise these mechanisms. A theoretical framework is developed next that explicates the interrelationships between and among these corporate control mechanisms. A number of research opportunities that span the disciplines of organization theory and financial economics are identified. [ABSTRACT FROM AUTHOR]

Based on predictions from agency theory and a theory of managerial hegemony, this study compares the board structure of 53 companies that privately repurchased stock at a premium above the market place--i.e., paid greenmail--and 57 companies that resisted greenmail. The decision to pay greenmail is used as a proxy for the board's ineffectiveness, which is defined as the inability of the board's outside directors to prevent management from making decisions--such as paying greenmail--that are in conflict with stockholders' interests. Boards that effectively resisted greenmail were found to have more outside directors, more directors with executive experience, and more directors who represented interorganizational transactions than boards of companies that paid greenmail. [ABSTRACT FROM AUTHOR]

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The article discusses the reaction of the author on the claim of Professor Kent Grennfield regarding corporate law. The author emphasizes that the claim of Greenfield in corporate law is broken because it is shareholder-centric. He stresses the importance to include non-shareholder constituencies of the corporation for the improvement of the law. He notes that Greenfield's vision of corporate law would destroy the proven effective systems of corporations.

We examine abnormal returns around the announcement of antitakeover amendment proposals for evidence on variation in the effectiveness of monitoring by outside stockholders. The evidence suggests that the market views large stockholders who are outsiders but have potential business ties to a firm (affiliated blockholders) as less effective monitors than other outside blockholders (unaffiliated blockholders). Abnormal returns tend to be lower at firms where holdings of affiliated blockholders exceed holdings of unaffiliated blockholders than at firms where the reverse is true. The difference in the stock ownership of these two classes of blockholders explains more of the variation in abnormal returns than factors such as management stock ownership and board composition. The evidence for affiliated and unaffiliated block- holders is consistent when we focus on the relation between abnormal returns and institutional ownership. No evidence is found of systematic variation in the effectiveness of monitoring by institutional stockholders who are not blockholders. [ABSTRACT FROM AUTHOR]

The article discusses the role of controlling shareholders in business groups. An important and growing literature in finance points to existence of considerable benefits to being a controlling shareholder. At the same time, the well established literature on mergers finds these key corporate events to be subject to agency costs. Relying on these two arguments, the authors employ a novel application of the Bertrand et al. (2002) insight to study the hypothesis that controlling shareholders use acquisitions to expropriate resources to their benefit. The findings do not allow us to reject the null hypothesis of proportional sharing of acquisition gains in favor of the alternative hypothesis of expropriation of to agency minority shareholders.

The majority stockholders are not the same as parent company stockholders in a consolidated entity when one or more subsidiaries own parent company's shares. In this milieu, the allocation of income could be performed: a) among majority and minority stockholders; b) among parent company stockholders and minority stockholders. Considering minority interest as a component of the consolidated equity, this paper demonstrates how the criterion used to allocate income can influence on the consolidated financial statements and, thereby, analysis based these financial statements. [ABSTRACT FROM AUTHOR]

Organizational democracy is frequently associated with increased employee involvement and satisfaction, higher levels of innovation, increased stakeholder commitment, and, ultimately, enhanced organizational performance. However, democratic processes can also absorb significant time and other organizational resources and bog down decisions, which may lead to reduced efficiency. This article summarizes the pros and cons of organizational democracy. It also introduces and integrates ideas from the three other articles in this special forum. In the end, we conclude that although the economic arguments for organizational democracy may be mixed, increased stakeholder participation in value creation and organizational governance can benefit both society and corporations. In fact, the corporation itself may be envisioned as a system of self-governance and the voluntary cooperation of stakeholders. [ABSTRACT FROM AUTHOR]

Contractualism conceives of firm-stakeholder relations as cooperative schemes for mutual benefit. In essence, contractualism holds that these schemes, as well as the normative principles that guide and constrain them, are ultimately ratified by the consent and endorsement of those subject to them. This paper explores the empirical validity of a contractualist perspective on firm-stakeholder relations. It first develops a typology of firm-stakeholder contracting problems. It subsequently confronts this typology with empirical data collected in an interview study of concrete stakeholder management practices, involving in-depth research interviews with forty-four managers working in the Dutch financial services industry. The findings of this theory-building study suggest that there are limits to the applicability of the contract model in the context of stakeholder management, and that disregarding either the model or its limitations may lead to highly ineffective firm-stakeholder relations. [ABSTRACT FROM AUTHOR]

Value creation has long been hailed as the major objective of business firms by many management researchers. Some authors state that a firm must create value for its shareholders; some insist that value must be created not just for shareholders but also for all stakeholders. However, most discussions of value creation do not address an important question: "For whom the value is created?" The purpose of this paper is to take a first step to fill this void and propose a model of value creation along three dimensions: financial, nonfinancial, and time. It is hoped that the model will contribute to a better understanding of how strategic and operational decisions of managers may create value for some stakeholders while destroying it for others. [ABSTRACT FROM AUTHOR]

This investigation is motivated by the lack of scholarship examining the content of what firms are communicating to various stakeholders about their commitment to socially responsible behaviors. To address this query, a qualitative study of the legal, ethical and moral statements available on the websites of Forbes Magazine's top 50 U.S. and top 50 multinational firms of non-U.S. origin were analyzed within the context of stakeholder theory. The results are presented thematically, and the close provides implications for social responsibility among managers of global organizations as well as researchers interested in business ethics. [ABSTRACT FROM AUTHOR]

This paper builds on a debate between Velasquez and Fleming: Do multinational enterprises (MNEs) have ethical obligations to their host countries? Velasquez applies Thomas Hobbes' realism approach in arguing that MNEs have no special moral obligations to host countries: (a) obligations do not exist independently in a "state of nature," (b) MNEs exist in a "state of nature" independent of any sovereign authority or power, (c) therefore, MNEs cannot be compelled toward moral or ethical behavior. Fleming counters that the lack of an international authority to compel morality from MNEs is irrelevant. MNEs are for-profit entities making rational economic decisions based on their perceived self- interest. Since they operate in "the goldfish bowl of international media," MNEs are very aware of the stakeholder model. First, the paper supports Fleming's position: Even if a philosophical case cannot be established for MNEs to act ethically--they still should. Being unethical in any arena, but especially in the international arena, is both bad-for-business and bad business. Applying stakeholder theory, if stakeholders perceive the MNE as unethical (which may or may not be true), the firm will ultimately lose business. Next, the paper applies Fleming's position to transitional economies. As economies shift from one system to another, positive perceptions and stakeholder support are required for success. With so many environmental variables in flux, multinationals must promote a sense of normalcy, of regular ethical habits, of familiarity. Finally, the paper concludes by cautioning a sole reliance on stakeholder analysis especially in turbulent times and recommends areas for further research. [ABSTRACT FROM AUTHOR]

Examines the need to structure option grants to pay executives for performance. Examples of how options are greatly misused; Flaws in the way options are typically granted which have led to huge bonuses being paid for underperformance; Ideas on how stockholders can correct the situation; Why stock options are a good reward.

A critique of Milton Friedman's thesis that corporate executives have a fiduciary responsibility not to pursue socially desirable goals at the expense of profitability. The author argues that even under a libertarian conception of the nature of corporate property, Friedman's thesis does not follow. In particular, an executive's decision to prize "socially responsible behavior" above profit maximization does not necessarily violate the contractual rights of dissenting stockholders. Whether executives have obligations to refrain from such behavior depends entirely on the content of the contract which actually exists between stockholders and executives. After an examination of the body of legal precedent which informs the content of that contract, the author concludes that there are clearly recognizable circumstances in which executives may legitimately pursue corporate altruism at the expense of profits, stockholder protestations notwithstanding. Since this contractual relationship with management is one in which stockholders have voluntarily engaged, libertarians have no grounds for complaining that the behavior of such executives constitutes a form of theft of the stockholders' property. [ABSTRACT FROM AUTHOR]

This article presents an empirical investigation of factors which influence the magnitude of the earnings association coefficient. Those factors which are found to influence the association include levels of leverage and profitability, while no evidence is found to support a systematic risk or volatility effect. Evidence is presented that the association between reported earnings and security returns is stronger for firms with relatively high levels of profitability and firms with low debt to equity ratios. No evidence was found to support a relationship between earnings volatility or systematic risk and the strength of the association between unexpected earnings and security returns. In summary, of the variables which have been hypothesized to be associated with the magnitude of the earnings response coefficient, some are demonstrated to be associated with the magnitude of the earnings association coefficient. The study has interesting implications for stockholders, managers, and researchers. Surely firms are interested in knowing the impact their reported earnings have on security prices.

This article discusses responsibilities of corporations and their managers as a trustee for stockholders and consumers, from legal perspectives. Directors and managers of modern large corporations are granted all sorts of novel powers by present-day corporation statutes and charters, and are free from any substantial supervision by stockholders by reason of the difficulty which the modern stockholder has in discovering what is going on and taking effective measures even if he has discovered it. The sole function of the corporation, suggestively, is conceived to be the making of profit for its stockholder-members, so that they are the ultimate beneficiaries of the business and of the activities of the persons by whom it is carried on. It is suggested that the legal recognition that there are other interests than those of the stockholders to be protected does not, however, necessarily give corporate managers the right to consider those interests, as it is possible to regard the managers as representatives of the stockholding interest only.

This article discusses several legal provisions of dissenting stockholders under appraisal statutes of the U.S. judicial system. The problem of the dissenting stockholder and his remedies under modern appraisal statutes has been one of conflict between strong and divergent interests. If the corporation, through a vote of the majority, sold all the assets, merged, or consolidated, where it appeared that the majority had exceeded its lawful powers, those stockholders not assenting to the contemplated change might, by prompt action, have the transaction set aside, or they might sue for the value of their shares on the theory that their interest in the corporation had been converted. Some courts talked about a conversion of shareholder's share, and the remedy given was the value of his stock. For all practical purposes there had been a conversion of the property interest of the stockholder. His share, represented by his certificate, had an ascertainable value represented by definite corporeal and incorporeal property previous to the transaction illegally performed. The main line of inquiry of this article is concerned to the legal right of the dissenter to an appraisal, the difficulties encountered in the application of the statute, the problem of alternative remedies, and the valuation of dissenters' shares.

The article focuses on partnership liability of stockholders in defective corporations. The corporation laws of the various states provide that the consequence of doing certain acts prescribed by those laws is the creation of an artificial legal person, known as a corporation, and that other persons may contribute to the capital of such a corporation and share in the profits derived from its activities without incurring any personal liability for its debts. It not infrequently happens that people contribute to the capital of such an enterprise on the assumption that the necessary steps for securing incorporation have been taken, but that this assumption proves to be erroneous, with the result that the enterprise, whatever it may be, is certainly not a lawfully existing or de jure corporation.

In 1964 Myron Gordon hypothesized that business managers can be expected to select those measurement and reporting rules which smooth periodic net income. Normal income and smoothed earnings were defined with considerable rigor. The smoothing hypothesis was tested by considering whether an accounting measurement rule was selected which tended to: adjust the firm's percentage change in earnings per share to the average percentage change in the industry or smooth the firm's earnings per share toward a normal value or smooth the firm's rate of return on common stockholders' equity. The dividend-income basis is particularly open to manipulation. Parent company management may wait until the very end of an accounting period, approximate the size of the parent's earnings, and then arrange to have the subsidiary declare or pass dividends in such magnitudes as to move reported net income in some sired direction. Management's ability to manipulate reported parent profits in this situation is eliminated under two alternative accounting methods for recording subsidiary operations. These methods are consolidated reporting and unconsolidated reporting under the equity method.

Accountant and economist are a sensible combination on matters of income determination, as Professors Robert L. Dickens and John O. Blackburn demonstrated, that their several-pronged analysis demolishes the case for replacement cost as an ingredient in accounting net income is, however, deserving of a demurrer. This present article is a criticism of their criticism, the purpose being to return the argument to what the economists regard as its proper grounds. The criticisms embrace three areas, methodology, economic theory, and accounting theory. The methodological criticisms are, of course, general and independent of the subject matter treated. The criticisms on economic theory refer primarily to economic concepts which underlie many of the questions discussed by Dickens and Blackburn and are, of course, specific to economic theory and its applications. The criticisms on accounting theory are principally concerned with the charges, both express and implied, by Dickens and Blackburn that the use of replacement cost is incompatible with the informational needs of stockholders, and significantly less conventional than the use of conventional accounting, thus being an invitation to easy manipulation of accounting data by managers.

This paper emphasizes these points: 1. The minority interest is a stockholder equity interest and should be shown as such. 2. The variety of classifications presently used in showing the minority interest indicates that doubt exists as to its nature--liability, quasi-liability, or stockholder equity. 3. If the majority interest point of view is adopted, statements can be prepared from this standpoint and the minority can be brought along as a special stockholder equity interest. 4. Particularizing the minority share in retained earnings appears to be unnecessary since the total earnings is the same in the method described, and control over its disposition remains in the majority. [ABSTRACT FROM AUTHOR]

The article discusses the effects of the method of privilege subscription for obtaining capital commonly used by U.S. railroad companies. Acquiring new capital is easy through the use of the following methods including appropriating the needed funds from current earnings, creating a floating debt, sale of new stock and increasing the funded debt. Each of these is especially adapted to certain specific purposes, while for other purposes several alternative courses are open. For that class of expenditures known as betterments that are considered common source of funds. There are also courses of action available for shareholder to dispose his privilege and methods for calculating extent of privileged benefits of stockholders.

This paper constructs a Herfindahl index of stock dispersion and uses it to examine how the degree of stockholder control influences managerial remuneration. The Herfindahl index captures the increasing control associated with larger blocks of dominant stockownership, as well as the increased likelihood of collusion among stockholders when the number of shareholders are fewer. The empirical results dearly demonstrate that an inverse and continuous relation exists between the degree of stockholder control and executive compensation. [ABSTRACT FROM AUTHOR]

The article reports on the positive ratings of the Zenith Bank Plc in Nigeria by independent investor relations firms. The ratings suggested that Zenith Bank is a good choice since it offers both medium, and long-term investment. According to the author, a statement from the bank declared that the positive ratings was a result of their performance which are based on primary data, the Nigerian Stick Exchange, and the prospectus which are validated by stockholders, and investors. The Zenith Bank has N130bn hybrid offer, which has a profit growth of 66 percent in half a year.