Silvije Orsag

By Silvije Orsag

Corporate governance is essentially developed from the characteristics of a public company. In such a company, there is a strict division between entrepreneurship and ownership, which results with agency problem between management and stockholders in asymmetric information’s conditions. Therefore, the communication of society is with the investor’s public, which is one of the key areas of corporate governance. This is primarily related to existing and potential firm’s stockholders, who use that information for the assessment of existing, or potential investment. There are many ways of communication. Periodically, the most comprehensive is by using financial reporting. Unfortunately, today’s common financial reporting practice are not directed to existing and potential firm’s stockholders. Reporting shows business value primary as firm’s assets value and stockholders are observing assets as financial potential, and are primary interested in economic value based on expected cash flows and risk reward relationship. Because of that, there are big challenges for the improvement of financial reporting. Furthermore, there are many challenges to improve alternative ways of firm’s communication in the areas of main risks exposure of firm’s business operation, business strategies, fair approach to investors, etc. All these improvements have significant potential for better assessment of firm’s value.

Part of the book: Firm Value