**1. Introduction**

The separation of entrepreneurship from ownership in modern economy enabled the concentration of capital in the individual economic entities. This enabled the transformation of

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

business activities from the universal owner-entrepreneurs to the well-educated and welltrained professionals who should perform all of their tasks in the best interests of the owners of such large and complex economic entities. This feature of contemporary economics has been made possible through the transparent and efficient financial market, particularly the capital or, more specific, the stock market. The stock market allowed the generalization of individual and personalized owner's goals and transformed them at a level of the company's long-term stock market values, and the stock market values became the owner's instrument for achieving greater wealth.

This chapter aims to initiate a professional and academic debate on improving public company communication whit of equity investors for the main purpose of enabling valuation of a company as close as possible to its real intrinsic value. This applies to all forms of communication and, in particular, to financial reporting. Although we are witnessing significant success in standardization and harmonization of financial reporting worldwide, there are still many problems in using financial statements in the valuation process. In this context, the initial assumption is that today's financial reporting is oriented to the lenders rather than the equity investors. Financial reporting does not explicitly contain descriptions of main operating and financial risk exposure of the firm. Furthermore, increasing use of fair market value principles for valuation financial statement position increases subjectivity and opens the possibility to

Public Company Communications with Equity Investors and Firm Value

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Corporate governance is a complex concept which is differently understood, in part due to the broad understanding of the term "governance," as the job between the board and the reign. However, both the board and the reign have their legal basis, but with respect to those that are managed or governed, it can also be based on promises (paraphrase of [7]). Because of this, the communication with those who are governed, as well as with other stakeholders, is an integral part of corporate governance. Corporate governance encompasses processes, customs, laws, policies, regulations, and institutions that affect how a firm is managed and controlled. Although corporate governance refers to many stakeholders, it is mainly focused

Corporate governance is an internal system which comprises policies, processes, and people that serve the needs of shareholders and other stakeholders, by directing and controlling management activities according to sound business practice, company goals, responsibilities, and integrity. Proper corporate governance is evaluated by obligations made to the external market and legislation, as well as by healthy governance that protects policies and processes [8]. It is aimed at maintaining the balance between economic and social goals and likewise between individual and common goals. The aim is to align the interests of individuals, corporations, and society as nearly as possible [9]. Corporate governance could also be considered as an economic discipline focused on incentive mechanisms for motivating the management of a corporation, such as contracts, organizational schemes, and legislation. It is often limited

Corporate governance is primarily focused on the principal-agent problem and asymmetry of information in creating value for shareholders. Valuation under corporate governance is also connected with the transaction cost theory introduced by Ronald Coase [11]. Principals are shareholders, and the principal-agent problem is often observed between shareholders, government, and executive management. The role of government is to protect the interests of shareholders, or to direct the business according to shareholders' interests. Essential aspect of effective corporate governance with lowest possible agency costs is whether the government

to issues of improving financial performance of the company [10].

prepare targeted financial statements.

on the shareholders of the company.

**2. Company value**

The separation of ownership and entrepreneurship raises the issue of additional mediation between people because of the entrepreneurship and property rights which were once contained in a single person (i.e., owner), now manifest through the action of the managers as the agents (the principal) working under conditions of information asymmetries. Therefore, one can conclude that the agency problem [1] exists not only in modern public corporations with the relation between the management and the owners, but also within owner interest groups, primarily between small and large shareholders, those who hold significant interests in the company. Agency theory [2] shows how the problem of agents in terms of conflict of interest can lead to specific securities' categories agency cost [3]. The problems of agents and associated information asymmetries have begun to interest the academics and the practitioners in the early twentieth century, especially after the Great Crisis [4] in a framework known as corporate governance.

It is possible to significantly reduce the agency problem in an environment that increases the information symmetry between agents and principals, managers, and owners (shareholders). Therefore, for a public company, the communication with public investors on financial markets is *conditio sine qua non* of existence as well as the privilege of the public company to obtain the largest amount of capital at the lowest costs [5]. This necessity is primarily related to communication with existing and potential shareholders. However, possible conflicts of interest between creditors and owners may also arise. Conflicts of interest are commonly brought up in the context of over indebtedness and deterioration of the company, unless one does not wish to expand the concept of a creditor on those who spontaneously lend to the company, such as, for example, the vendors.

The financial economy and the financial industry are considered to be important and extremely sensitive segments of the economy, which is why the financial markets, particularly the capital market, are highly regulated. Of course, this implies that the financial market regulation and financial supervision, have a significant impact on the public company communication with the overall investment public. Financial supervision is organized differently in different countries. Still, most often, it is decentralized, with demands that often impose supervision of banks focused primarily on banking business and the protection of creditors [6]. In a broader sense, public company communication with investors is affected also with other supervisory bodies in the economy. The globalization of the financial markets on public company's communication with investor's public is increasingly affected by the international financial supervision, where once again the supervision of banks dominates, along with different international bodies responsible for communication harmonization.

This chapter aims to initiate a professional and academic debate on improving public company communication whit of equity investors for the main purpose of enabling valuation of a company as close as possible to its real intrinsic value. This applies to all forms of communication and, in particular, to financial reporting. Although we are witnessing significant success in standardization and harmonization of financial reporting worldwide, there are still many problems in using financial statements in the valuation process. In this context, the initial assumption is that today's financial reporting is oriented to the lenders rather than the equity investors. Financial reporting does not explicitly contain descriptions of main operating and financial risk exposure of the firm. Furthermore, increasing use of fair market value principles for valuation financial statement position increases subjectivity and opens the possibility to prepare targeted financial statements.
