BPUB621.2003.Lecture.Slides.4.Corporate.Statements

BPUB621.2003.Lecture.Slides.4.Corporate.Statements -...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Wharton School: [4](1): Asymmetric Information in Markets Seller offers to sell his shares of a corporation, but for what reason? Cash for consumption, paying off debts, or reinvesting in other assets Or knows that the corporation’s earnings will decline (asymmetric information) Buyer should adjust his offer to buy downward to take account of the latter Buyer offers to purchase shares of a corporation, but for what reason? Investing excess cash Or knows that the corporation earnings will increase (asymmetric information) Seller should adjust his to sell upward to take account of the latter Inefficient Market - mutually beneficial transactions will not occur Some buyers would be willing to pay a higher price Some sellers would be willing to sell at a lower price Thus, some transactions will not occur
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Wharton School: [4](2): Asymmetric Information Lessons for Securities Markets Markets are less efficient at determining prices Wider bid-ask spreads Investors without confidential information will exit the markets Fewer small investors will participate in the markets Market price will be determined the bids and asks of investors with non-public information Only investors who believe they have better non-public information will trade Participating investors will focus on obtaining better non-public information Investors will focus less effort on assessing public information
Background image of page 2
Wharton School: [4](3): Common Law Fraud Knowing (scienter) Economic loss (contracts): Intentional or reckless disregard for the truth Personal injury or property loss in some states: Negligent disregard for the truth Misrepresentation Untrue statement But can be an omission from a statement which makes the statement misleading When the person making the statement has a fiduciary duty of a Material Fact Fact is important to a reasonable person considering the transaction which induces Reasonable Reliance reliance might be unreasonable if there is easy access to the truth and causes Damages actual damages such as economic losses, and possibly punitive damages
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Wharton School: [4](4): Non-Disclosure in Securities Markets Fiduciary Duty Board of Directors and Management to shareholders and market participants Breach of Duty Failure to disclose material information Important for a reasonable person in making decisions to buy or sell shares Plaintiff would not have traded and experienced a loss from trade Standard: Intentional and Gross Negligence
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/27/2009 for the course ECON BPU taught by Professor Perry during the Spring '09 term at Rutgers.

Page1 / 23

BPUB621.2003.Lecture.Slides.4.Corporate.Statements -...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online