I missed a test question on this and thought you guys might want a quick refresher: Per Reading 30, Pg. 240: Weak Corp. Governance systems pose the following risks to the value of a company: Accounting Risk: Risks that Fin. Statements will contain error or disclosure is insufficient Asset Risk: Risk that the firm’s assets will be misappropriated by management for their own personal gain in the form of perquisites or compensation. Liability Risk: Risk that management will enter into excessive obligations on behalf of the shareholders. Strategic Policy Risk: Risk that managers will enter into transactions(e.g. M&A) that solely benefit themselves. The most salient point is that risk regarding compensation is an asset risk.
Thanks, haven’t reviewed this stuff in a while.