ECON 351 Chapter Notes - Chapter 9: Financial Statement, Public Company, Startup Company
Document Summary
Chapter 9: transactions costs, asymmetric information, and structure of financial. A situation where sellers have information that buyers do not about some aspect of product quality. Insurance and investor like low-risk and high return. It covers making bad decisions because of not having the complete information: moral hazard. Risk that people take actions after they have entered into a transaction that will make the other party worse off. I did not warn someone about a bad condition of an item before selling it such as car. Organization of large publicly traded firms result in a separation of ownership from control. To reduce this problem, the sec requires managers to issue financial statements. Firms are owned by shareholders but run by top management ceo, cfo, coo, etc. There is less moral hazard in the bond market than in the stock market. To reduce moral hazard, investors insert restrictive covenants into bond contracts. How financial intermediaries reduce moral hazard problems:
