An Analysis of Corporate Collapses
“An Analysis of Corporate Collapses”
MPA751 Financial Reporting and Analysis
Unit Chair: Dr. Wen Qu.
Student Name: Andrew William Giblin
Student Number: 211221042
Due Date: Monday 20th August 2012
I certify that the attached work is entirely my own, except where material quoted or paraphrased is acknowledged in the text. I also declare that it has not been submitted for assessment in any other unit or course.
Table of Contents
Executive Summary 3 Introduction……………………………………………………………………………………………4 Agency Theory and Relevant Hypotheses 5 ABC Learning Centres Limited - Australia 7 Olympus Corporation - Japan ……………………………………………………………………..10
WorldCom Incorporated - United States of America…………………………………………… 13 Conclusion 16
Reference List…………………………………………………………………………………….…17
Executive Summary
“An analysis of corporate collapses” is a report that discusses the concept of Agency Theory and the impact this has on organisations that appoint agents to act on behalf of the owners or shareholders of the company. Three corporate collapses were identified as part of the report and each collapse was analysed with regard to both agency theory and the Australian Securities Exchange (ASX) “Corporate Governance Principles and Recommendations with 2010 Amendments. For each case several principles and their recommendations that are deemed relevant are discussed and analysed. The three companies are: * ABC Learning Centres Limited Australia * Olympus Corporation Japan * WorldCom Incorporated United States of America
Introduction
This report consists of an explanation of agency theory and three hypotheses that are derived from the theory which are: * Bonus plan Hypothesis (Management compensation) * Debt Covenant Hypothesis * Political Cost Hypothesis
The report discusses the self-interests of agents and the impact this has for the company. I was particularly interested in bonus plan hypothesis and how this
MPA751 Financial Reporting and Analysis
Unit Chair: Dr. Wen Qu.
Student Name: Andrew William Giblin
Student Number: 211221042
Due Date: Monday 20th August 2012
I certify that the attached work is entirely my own, except where material quoted or paraphrased is acknowledged in the text. I also declare that it has not been submitted for assessment in any other unit or course.
Table of Contents
Executive Summary 3 Introduction……………………………………………………………………………………………4 Agency Theory and Relevant Hypotheses 5 ABC Learning Centres Limited - Australia 7 Olympus Corporation - Japan ……………………………………………………………………..10
WorldCom Incorporated - United States of America…………………………………………… 13 Conclusion 16
Reference List…………………………………………………………………………………….…17
Executive Summary
“An analysis of corporate collapses” is a report that discusses the concept of Agency Theory and the impact this has on organisations that appoint agents to act on behalf of the owners or shareholders of the company. Three corporate collapses were identified as part of the report and each collapse was analysed with regard to both agency theory and the Australian Securities Exchange (ASX) “Corporate Governance Principles and Recommendations with 2010 Amendments. For each case several principles and their recommendations that are deemed relevant are discussed and analysed. The three companies are: * ABC Learning Centres Limited Australia * Olympus Corporation Japan * WorldCom Incorporated United States of America
Introduction
This report consists of an explanation of agency theory and three hypotheses that are derived from the theory which are: * Bonus plan Hypothesis (Management compensation) * Debt Covenant Hypothesis * Political Cost Hypothesis
The report discusses the self-interests of agents and the impact this has for the company. I was particularly interested in bonus plan hypothesis and how this
References: ABC Learning Centres Ltd, Annual reports, 2001-2007 Baeten, X, Balkin, D, & Van den Berghe, L 2011, 'Beyond Agency Theory: A Three-Paradigm Approach to Executive Compensation ', IUP Journal Of Corporate Governance, 10, 4, pp Gapper J, 2011 ‘Olympus shows Japan’s negative side’, The Financial Times, 19 October 2011, retrieved 4 August 2012. Gapper J, 2011 ‘Olympus’s deceit was dishonorable’ The Financial Times, 9 November 2011, retrieved 8 August 2012. Gapper J, 2011 ‘Turning a blind eye at Olympus’, The Financial Times, 19 October 2011, retrieved 2 August 2012. Gollakota, K. & Gupta, V. 2004, Worldcom Inc.: Survival at Stake, Jounal of the International Academy for Case Studies 10. 4. Cullowhee, United States, Cullowhee. Retrieved 6 August 2012, ProQuest database. Nakamoto M, 2012 ‘Fears over bank’s role in Olympus shake-up’ The Financial Times, 20 February 2012, retrieved 2 August 2012. Scharff, M.M. 2005, “WorldCom: A Failure of Moral and Ethical Values”, Journal of Applied Management and Entrepreneurship, vol. 10, no. 3 pp. 35-47. Vasilescu, A.M. & Russello, G.J. 2006, “As gatekeepers, independent directors of public compnies face additional scrutiny and liability in the post-Enron/WorldCom world”, International Journal of Disclosure and Goverance, vol. 3 no. 1, pp. 3-15. West M, 2012 ‘Big Banks face $100m action over ABC’, The Sydney Morning Herald, 29 June, retrieved 21 July 2012, Newsbank database.