Since the turn of the century and the Enron-class corporate scandals the debate on corporate governance has been shaped by a massive complex of realized or contemplated legal reforms. The introduction of the Sarbanes-Oxley Act in 2002, the proposed amendments to the proxy rules regarding shareholder access and lately the proposed regulations pertaining to executive compensation have all led to a unidirectional view of corporate governance emanating from state actors and imposed upon corporations. This top-down perspective has shifted the focus away from the plethora of corporate governance institutions that do not stem from state or federal law, but are privately designed by the corporate constituencies and are legitimized through their inclusion in the firm’s charter or bylaws. To put it differently, now that the Congress and the SEC have started interfering more with internal corporate affairs the study of the contribution of private ordering to the US corporate governance system is to a certain extent put aside in the corporate law literature.
This paper seeks to rejuvenate the interest in private corporate governance institutions by attempting to reconcile corporate governance with contract theory. The underlying theme of the paper is that the comprehension of the factors that shape corporate governance in a private company setting presupposes the comprehension of the factors that impact contract design. In reality, many of the governance mechanisms that are designed by the parties to the corporate contract are essentially devices used to mitigate the various contractual impasses that contract theory identifies. The features of the contractual problems of adverse selection, moral hazard and incompleteness actually act as determinants of corporate governance planning. In other words, corporate governance institutions are a response to contractual design exigencies. Without corporate governance the members of the firm would have no way to fend off the cognitive chaos that derives from the problems of hidden knowledge, hidden action and unanticipated contingencies, to which the corporate contract gives rise.
In classical asset pricing models, perfect financial markets without frictions, especially no trading costs, are assumed and thus the diverse features of liquidity are ignored. However, considering liquidity in investment is important since liquidity affects portfolio investment performance (Holthausen, Leftwich, and Mayers (1991), Keim (2003), Lesmond, Schill, and Zhou (2004), Korajczyk and Sadka (2005)) and since it has a significant implication for portfolio diversification strategies (Domowitz and Wang (2002), Harford and Kaul (2004)). In addition, it has been shown that liquidity affects the cross-sectional differences of asset returns as a characteristic (Amihud and Mendelson (1986), Brennan and Subrahmanyam (1996), Amihud (2002)) or as a risk factor (Pastor and Stambaugh (2003), Sadka (2004), Acharya and Pederson (2005)).
The amount of research on the implication of liquidity on asset pricing at a global level is small relative to that for the US market. Rouwenhorst (1999) investigates the cross-sectional relation between asset returns and liquidity in 20 countries from emerging markets and found that small stocks or value stocks have higher average turnover than large or growth stocks, a finding he acknowledges to be hard to justify by existing liquidity theories. For 19 emerging markets, Bekaert, Harvey, and Lundblad (2003) show that the covariance of country-portfolio returns with local market liquidity predicts future returns, but they could not find evidence that global liquidity risk is priced. On the contrary, Stahel (2004b) investigates the existence of market-wide comovements of liquidity of individual stocks at the country, industry and global market level in 3 developed countries of Japan, UK and US.
The purpose of this study was to better understand the influence of the IFRS implementation on business management in Finnish Born Globals (BGs). The issue has not been covered in the existing literature in the context of BGs before. Effects of the IFRS’ voluntary adoption were found but they concentrated mainly on the external benefits gained by the companies (see e.g. Gassen & Sellhorn 2006; Covrig et al. 2007; Soderstrom & Sun 2007). One study (Ikäheimo et al. 2008) suggested that the benefits of adopting international accounting standards could exceed the costs in Finnish Born Globals. Still, no empirical research was made on the possible influences on the internal systems of the BGs. In answer to the research gap this study focused on the question of: How does IFRS contribute to Born Global companies’ development of business management,if at all?
The aim of this study was to understand whether international financial reporting standards benefit Born Global companies. The purpose was not to create an exclusive list of benefits and drawbacks of IFRS implementation in Finnish Born Global companies, but rather to present some benefits and drawbacks experienced when adopting the IFRS as the financial reporting system. The goal was to understand how the adoption of external reporting standards may influence internal processes, planning, and ways of action within an organization.
