Chapter 1

Goals and
Governance of 9e
Book Cover
the Corporation

1- 1
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Business Finance and Accounting
(1-3)
 Business finance and accounting is not the same thing.
Accounting is concerned with financial record keeping, the
production of periodic reports, statements and analyses, and
the dissemination of information to managers and, to some
extent, to investors and the world outside the business. It is
also much involved with the quality, relevance, and timeliness
of its information output.
 Obviously financial decision-makers will rely heavily on
accounting reports and the accounting database generally.
Knowledge of past events may be a good pointer to the future,
so reliable information on the past is invaluable. However, the
role of the financial manager is not to provide financial
information but to make decisions involving finance. In smaller
business, with narrow portfolios of management skills, the
accountant and the financial manager may be the same person
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Business Finance and Accounting
((2--3)
 In the large business the roles are most likely to be discharged
by different people or groups of people (1). Under the
continual pressure of needs of the economic practice the
science about business finances has been permanently
developing and achieving remarkable results. From the aspect
of the theoretical knowledge business finances gather
information from the microeconomics, they are linked up to
the business-economic science, closely associated with
accounting and employing mathematical methods and
statistics. Business finances are the system of monetary
relations, into which the corporation on acquiring financial
sources enters, on their placing and binding in individual
property components with the aim to exploit productively the
property and to distribute the results achieved..

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Business Finance and Accounting
(3-3)
 Monetary relations constituting the content of business
finances can be divided from the aspect of their character, from
the viewpoint of subjects among which they are formed and
according to the sphere of the corporate activity, or from other
aspects

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 Topics Covered

1.1 Investment and Financing Decisions

1.2 What is a Corporation?
1.3 Who Is the Financial Manager?
1.4 Goals of the Corporation
1.5 Agency Problems, Executive Compensation,
and Corporate Governance
1.6 The Ethics of Maximizing Value
1.7 Careers in Finance
1.8 Preview of Coming Attractions
1.9 Snippets of Financial History
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 Tujuan Korporasi (1)
 Utk menjalankan usaha bisnisnya perusahaan memerlukan
berbagai jenis asset.
 Klasifikasi Aset (current assets vs fixed assets; Financial Assets
vs Real assest)
 Fixed Asset ada yg sifatnya tangible (berwujud)
 Fixed Aset ada yang sifatnya intangible (tida berwujid)
 Perusahaan membeli asset tersebut dengan dana yang berasal
dari: meminjam, menginvestasikan Kembali laba yang
dieperoleh atau menjual tambahan saham
 Seorang manjer keuangan dihadapkan pada dua hal ini yaitu:
– 1. investasi apa yang akan dilakukan (keputusan investasi)
– 2. bagaimana cara membayar invetasi tersebu (keputusan
financing/pembiayaan).

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 Tujuan Korporasi (2)
 Maksimalisasi nilai korporasi, paling tidak menambah nilai
korporasi
 Manajer keuangan dapat menambah nilai korporasi kalau dapat
melakukan investasi yang menghasilkan return (imbalan) yang
lebih tinggi dari imbalan yang diperoleh pesero (pemegang
saham)
 Manager adalah manusia, bukan robot yang melayani keinginan
pesero yg akan memaksimalkan nilai perusahaan. Ada
benturan kepentingan anatara dua pihak. Kalau manajer
diminta utk memaksimalkan nilai apakah korporasi juga aka
menjadi warga negara yang baik? Apakah manajer akan
melakukan Tindakan tidak etik, melanggar hukum, melakukan
kecurangan? Mungkin saja manajer akan tergoda, tetapi

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 Tujuan Korporasi (3)
 Manajer yg bijaksana menyadarai bahwa tindakan tersebut
adalah hal yg tdk jujur dan malahan akan menghancurkan nilai
korporasi dan tidak akan menambahnya. Yang paling
menantang adalah di bidang abu-abu di mana batas tindakan
etis dan tindakan tidak etis tidak dapat digambarkan dengan
garis yang jelas.


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Investment and Financing Decisions (1 of 6)

 Capital Budgeting Decision

– Decision to invest in tangible or intangible
assets
 …also called
– Investment Decision
– Capital Expenditure (CAPEX) decision

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Investment and Financing Decisions (2 of 6)

“Capital Budgeting”

TANGIBLE ASSETS INTANGIBLE ASSETS

Lion Airlines Biofarma
Purchase new planes R&D expenditures

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Investment and Financing Decisions (4 of 6)

ASSETS FIRM

Investment Decision
Debt Equity

Financing Decision

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Investment and Financing Decisions (5 of 6)

 Real Assets
– Assets used to produce goods and services
 Financial Assets
– Financial claims to the income generated by the
firm’s real assets

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Investment and Financing Decisions (6 of 6)

 Are the following capital budgeting or

financing decisions?
a. Intel decides to spend $7 billion to develop a new
microprocessor
b. BMW borrows 350 million euros (€350 million) from
Deutsche Bank
c. Pertamina constructed a pipeline to bring oil from
Cilacap to Rewulu Yogyakarta
d. Avon spends €200 million to launch a new range of
cosmetics in European markets
e. Pfizer issues new shares to buy a small biotech company

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 Investment and Financing
Decisions (6 of 6)
 Pada bulan Agustus 2021 PT Bukalapak melakukan Initial Public
Offering dan berhasil menarik Rp22 triliun dari 96 ribu investor.
 Dana IPO PT Bukalapak semuanya digunakan untuk modal
kerja perusahaan dan anak usaha
 PT BRI Tbk menyalurkan kredit sebesar Rp929 triliun

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 What Is a Corporation? (1 of 4)

 Corporation
– A business organized as a separate legal entity
owned by stockholders
 Types of Corporations
– Public Companies
– Private Corporations
– Limited Liability Corporations (LLC)

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 What Is a Corporation? (2 of 4)
 Types of Business Organizations
– Sole Proprietorships
– Partnerships
– Corporations
– Limited Liability Options
• Limited Liability Partnerships
• Limited Liability Corporations
• Professional Corporations
 Limited Liability
– The owners of a corporation are not personally
liable for its obligations 1- 16
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 What Is a Corporation? (3 of 4)

Sole
Partnership Corporation
Proprietorship
Who owns the business? The manager Partners Stockholders
Are managers and owners
No No Usually
separate?
What is the owner’s liability? Unlimited Unlimited Limited
Are the owner and business
No No Yes
taxed separately?

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 What Is a Corporation? (4 of 4)

Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships

Limited Liability
Corporations Corporate tax on profits +
personal tax on dividends

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Who Is the Financial Manager? (1 of 3)

Chief Financial
Officer

Treasurer Controller

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Who Is the Financial Manager? (2 of 3)
 Chief Financial Officer (CFO)
– Supervises all financial functions and sets
overall financial strategy
 Treasurer
– Responsible for financing, cash management,
and relationships with banks and other
financial institutions
 Controller
– Responsible for budgeting, accounting, and
taxes
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Who Is the Financial Manager? (3 of 3)

(1) Cash raised from investors

(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested
(4b) Cash returned to investors
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 Goals of the Corporation (1 of 2)

 Shareholders desire wealth maximization

 Profit maximizationMaximize profits? Which
year’s profits?
– Earning manipulation (earning management)
 Opportunity cost of capital
– The minimum acceptable rate of return on capital
investment is set by the investment opportunities
available to shareholders in financial markets

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Goals of the Corporation (2 of 2)

The Investment Trade-Off

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 Agency Problem (1 of 5)

 Do managers maximize shareholder wealth or

manager wealth?
 Managers have many constituencies called
“stakeholders”
 Stakeholder
– Anyone with a financial interest in the
corporation

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 Agency Problem (2 of 5)

 Agency problem
– Managers are agents for stockholders and are
tempted to act in their own interests rather than
maximizing value
 Agency cost
– Value lost from agency problems or from the
cost of mitigating agency problems

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 Agency Problem (3 of 5)

Ownership vs. Management

Difference in Information Different Objectives

 Stock prices vs. returns
 Dilution of ownership
 Dividend policy
 Financing decisions
 Managers vs. stockholders
 Top managers vs. lower
managers
 Stockholders vs. banks and
lenders

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 Agency Problem (4 of 5)

 Corporate governance
– The laws, regulations, institutions, and
corporate practices that protect shareholders
and other investors

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 Agency Problem (5 of 5)

Elements of good corporate governance

1. Legal requirements
2. Board of directors
3. Activist shareholders
4. Takeovers
5. Information for investors

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 Ethics of Maximizing Value
“It is not from the benevolence of the butcher, the brewer,
or the baker, that we expect our dinner, but from their
regard to their own interest. We address ourselves, not to
their humanity but to their self-love, and never talk to them
of our own necessities but of their advantages.” –Adam
Smith, 1776

Does value maximization justify Is it ethical?

unethical behavior? • Short selling
• Volkswagen • Corporate raiders
• Charles Ponzi • Tax avoidance
• Bernard Madoff

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Preview of Coming Attractions

 How do I calculate the value of a stream of

future cash flows?
 How do I measure risk?
 Where does financing come from?
 How do I ensure that the firm’s financial
decisions add up to a sensible whole?
 What about some of those other
responsibilities of the financial manager
that you mentioned earlier?
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Snippets of Financial History
Date Activity
Unknown Compound growth
1800 b.c. Interest rates
1000 b.c. Options
15th C International banking
1650 Futures
17th C Stock corporations
17th C Currency
1720 New issue speculation
1792 NYSE formed
1929 Stock market crash
1960 Eurodollar market
1971 Corporate bankruptcies
1972 Financial futures
1986 Capital investment decisions
1988 Mergers
1993 Inflation
1780 & 1997 Inflation securities
1993 Controlling risk
1999 The Euro
2002 Financial scandals
2007-2009 Subprime mortgages
2011 Sovereign debt defaults
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 Home works
 Baca laporan keuangan perusahaan manufkatur utk tahun 2020
dan tahun 2019?
 Tulis investasi apa yang dilakukan oleh perusahaan? Berapa
jumlahnay?
 Sebutkan sumber pembiayaan untuk investasi tersebut?

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