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hi, just want to ask whether if the company declare it fully compliance with CG, will it likely increase the shareholder wealth?
This is the question:
5 Which of the following actions is LEAST likely to increase shareholder wealth?
A The weighted average cost of capital is decreased by a recent financing decision
B The financial rewards of directors are linked to increasing earnings per share
C The board of directors decides to invest in a project with a positive NPV
D The annual report declares full compliance with the corporate governance codethe answer is B. I can get it but is D is true?
Thanks
Not really. Look at corporate governance like ethical conduct. Ethical conduct is about compliance and following the rules. Take for example, let say there is a rule that says if profits are more than 15%, dividend must be given and at end of the year, profits are 30% and company does not declare divided, then it is violation of CG code. If there is no profit sharing rule, then company may or may not declare dividends. In that case, company is in compliance of CG code. I hope this helps. 🙂
ahh, i see. So that means D is incorect.
But in terms of the MCQ there i would say B & D is a wrong answer. However, why B? Is it because B is LEAST LIKELY whilst D is NOT/NEVER LIKELY?
mcq is getting tougher 🙁
Anyway, thanks randomname
a this will increase the eps
b This will decrease eps
c this is will increase eps
d Whole idea about CG is following this rule or that rule. One of the co’s rules is to max shareholder wealth. It may not increase the wealth in short run, but in long run it will increase it.MCQs under exam condition is tough. No, doubt. I feel for you. ?
For B, this will motivate the directors to take short term decisions or ‘massage’ the numbers in order to increase EPS. Therefore it might increase EPS in the short term, but in the long term it’s likely to lead to lower shareholder wealth.
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