lecturech[]——THEROLEOFFINANCIALINFORMATIONINCONTRACTING.ppt

CHAPTER 7 THE ROLE OF FINANCIAL INFORMATION IN CONTRACTING IV. Regulatory Agencies Regulatory accounting principles (RAP) are the methods and procedures that must be followed when putting together financial statements for regulatory agencies. IV. Regulatory Agencies A. Regulatory accounting principles (RAP) are the methods and procedures that must be followed when putting together financial statements for regulatory agencies. IV. Regulatory Agencies B. Capital requirements in the banking industry: IV. Regulatory Agencies B. Capital requirements in the banking industry: III. Management Compensation A. Managers have incentives to use corporate assets for their personal benefit at the expense of owners. Two ways of aligning managers’ incentives with owners’ interests are to: link compensation to stock returns And/or financial performance measures such as accounting earnings. III. Management Compensation Two ways of aligning managers’ incentives with owners’ interests are to link compensation to stock returns and/or financial performance measures such as accounting earnings. Managerial strategies and decisions clearly affect share prices in the long run, but short-run share prices could change because of factors that are outside of management’s control. III. Management Compensation 2. Two ways of aligning managers’ incentives with owners’ interests are to link compensation to stock returns and/or financial performance measures such as accounting earnings. Earnings are probably less susceptible to the influence of temporary and external economic forces, but earnings can be criticized for its reliance on accruals, deferrals, allocations, and valuations that involve varying degrees of subjectivity and judgment. III. Management Compensation B. How executives are paid: 1. Base salary is typically dictated by industry norms and an executive’s specialized skills. 2