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Who is the ultimate master of contractual, regulatory, discretionary and residual cash flows? An answer from the standpoint of corporate governance

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  • Rodolfo Apreda

Abstract

This paper sets forth a framework of analysis that links contractual, discretionary, regulatory and residual cash flows with decision rights over them. To attain this purpose, firstly we introduce the standard incremental cash flow model, underlying its main limitations. Secondly, we move on bringing to light cash flows to senior management and directors, as well as the so-often neglected investment portfolio. Next, we settle down to what we are going to call the compact cash flow model that comprises five building blocks, namely those arising out of assets, those addressed to owners, creditors, managers and directors, and lastly the company’s investment portfolio. Afterwards, contractual, discretionary, regulatory and residual cash flows are enlarged upon. Last of all, we focus on decision rights over every constituent of each building block. This issue carries weight in Corporate Governance since stakeholders who claim or exercise decision rights, also could trespass on the rules of the game, becoming better off to the expense and damage of other stakeholders.

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Bibliographic Info

Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 368.

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Length: 26 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:cem:doctra:368

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Keywords: corporate governance; contractual; regulatory; discretional and residual cash flows; decision rights; incremental cash flow model;

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References

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  1. Rodolfo Apreda, 2007. "Stakeholders, transactional environments and conflict systems (mapping on why the founding charter compact becomes the mainstay of corporate governance)," CEMA Working Papers: Serie Documentos de Trabajo. 346, Universidad del CEMA.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  3. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
  4. Rodolfo Apreda, 1999. "The Cash Flow Model with Float: A New Approach to Deal with Valuation and Agency Problems," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 247-279, November.
  5. Rodolfo Apreda, 2003. "THE SEMANTICS OF GOVERNANCE. (The common thread running through corporate, public, and global governance.)," CEMA Working Papers: Serie Documentos de Trabajo. 245, Universidad del CEMA.
  6. Rodolfo Apreda, 2007. "How the logic and pragmatics of sinking funds play a part in corporate governance," CEMA Working Papers: Serie Documentos de Trabajo. 351, Universidad del CEMA.
  7. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
  8. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  9. Friedman, Eric & Johnson, Simon & Mitton, Todd, 2003. "Propping and tunneling," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 732-750, December.
  10. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
  11. Rodolfo Apreda, 2002. "How corporate governance and globalization can run afoul of the law and good practices in business: The Enron's disgraceful affair," CEMA Working Papers: Serie Documentos de Trabajo. 225, Universidad del CEMA.
  12. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
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Cited by:
  1. Rodolfo Apreda, 2011. "GOVERNANCE RISKS. How to measure them by means of the incremental cash-flow model," CEMA Working Papers: Serie Documentos de Trabajo. 467, Universidad del CEMA.

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