Question

In the last decade, a number of record setting frauds were discovered. To defend shareholder value, Congress and regulatory agencies responded with more market regulation to force better corporate governance. With that being said, please answer the following questions:

1. Do you think financial regulations increase or destroy corporate values? Back up your statements with evidence and give examples to illustrate your position.

2. How efficient do you think the financial markets are today? Do you believe in the EMH? Do you have any alternative theories on efficient markets?

Please answer both thoroughly.

Answer 1

1) when it comes to public limited company, it is important for the board to ensure all necessary action must be taken to protect the interest of the investor, if they fail to protect the shareholders value. on behalf of the investors regulators must increase their regulations. share holders are the real owners of the company it board fail to protect the investors interest, capital formation of the economy will be affected. so financial regulation increase the corporate value.

2) financial markets are more efficient in recent days but penetration of debt market is low because of lack of interest of retail investors also debt market return are below average return. equity market performance is good it provide 12% average return. Though the efficient market hypothesis theorizes the market is generally efficient, the theory is offered in three different versions they are weak, semi-strong, and strong.

• The weak form suggests today's stock prices reflect all the data of past prices and that no form of technical analysis can aid investors.
• The semi-strong form submits that because public information is part of a stock's current price, investors cannot utilize either technical or fundamental analysis, though information not available to the public can help investors.
• The strong form version states that all information, public and not public, is completely accounted for in current stock prices, and no type of information can give an investor an advantage on the market.