CHAPTER6Firms, the Stock Market.and Corporate GovernanceChapterOutlineandLearningObjectivesehn6.1TypesofFirms6.2The Structure ofCorporations and thePrincipal-Agent Problem6.3HowFirms RaiseFunds6.4UsingFinancial StatementstoAnalyze a Corporation6.5Corporate GovernanceNASDAOPolicy and theFinancialCrisisof2007-2009Appendix:ToolstoAnalyzeFirms'Financial Information
1 Chapter Outline and Learning Objectives 6.1 Types of Firms 6.2 The Structure of Corporations and the Principal-Agent Problem 6.3 How Firms Raise Funds 6.4 Using Financial Statements to Analyze a Corporation 6.5 Corporate Governance Policy and the Financial Crisis of 2007-2009 Appendix: Tools to Analyze Firms’ Financial Information CHAPTER 6 CHAPTER Firms, the Stock Market, and Corporate Governance
WhyFirmStructure,Finance,andGovernance?In this chapter we will examine how firms are run:Howtheyareorganized,.How they obtain financing,How they convey information to the public, andWhether they act in the best interest of their owners.Each of theseitems affecthowfirmsbehave,and whattheiroverallimpact on the economy will be.@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 2 Why Firm Structure, Finance, and Governance? In this chapter we will examine how firms are run: • How they are organized, • How they obtain financing, • How they convey information to the public, and • Whether they act in the best interest of their owners. Each of these items affect how firms behave, and what their overall impact on the economy will be
TypesofFirms6.1LEARNINGOBJECTIVECategorizethemajortypesoffirmsintheUnitedStates@2015PearsonEducation,lnc3
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 3 Types of Firms 6.1 Categorize the major types of firms in the United States
TheTypes of FirmsFirms are legally categorized in the U.S. as one of the following:SoleproprietorshipA firm owned by a single individual and not organized as acorporation.Partnership:A firm owned jointly by two or more persons and not organized as acorporation.Corporation:A legal form of business that provides owners with protection fromlosing more than their investment should the business fail.@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 4 The Types of Firms Firms are legally categorized in the U.S. as one of the following: Sole proprietorship: A firm owned by a single individual and not organized as a corporation. Partnership: A firm owned jointly by two or more persons and not organized as a corporation. Corporation: A legal form of business that provides owners with protection from losing more than their investment should the business fail
WhoIs Liable?Limited and Unlimited LiabilityIn soleproprietorships and partnerships,no legal distinction ismadebetween the assets of the firm and the assets of its owner(s).Asset:Anythingofvalueownedbyapersonorafirm.This is not the case for corporations. The owners of corporationshave limited liability, a legal provision shielding owners of thecorporation from losing more than they have invested inthe firmLimited liability makes raising funds easier for a firm; it also makesinvestinginfirmseasierforindividuals2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 5 Who Is Liable? Limited and Unlimited Liability In sole proprietorships and partnerships, no legal distinction is made between the assets of the firm and the assets of its owner(s). Asset: Anything of value owned by a person or a firm. This is not the case for corporations. The owners of corporations have limited liability, a legal provision shielding owners of the corporation from losing more than they have invested in the firm. Limited liability makes raising funds easier for a firm; it also makes investing in firms easier for individuals