What is the risk of financial reporting?
6 The higher the risk, the more it reduces the price of the assets that depends on the company's financial health. Therefore, the company has to pay more for obtaining funding for its projects. The concept of reporting illustrates the importance of integrity and reputation in business. If errors are caused by incompetence, they should be equally likely to distort income too high and too low. In the long run, the average income should be close to the correct amount because the errors are canceling each other. Nevertheless, the risk of financial reporting reduces the prices of the company's shares. While purely mathematical theory of ripi calculation of volatility measures treat losses and profits differ equally in the perception of investors. People combine greater importance of losses than to profits of the same size. The theory of behavior acknowledges the increased importance of losses, which explains the reduction of prices caused by the risk of financial reporting.
the price of shares of any sharesHe hangs on the performance of the company that publishes it. The accuracy of the company's financial reports is therefore essential for investors who are trying to decide whether to buy shares. A greater weight of losses with respect to profits means that if there is the same risk of both, investors evaluate shares as if the expected returns have decreased and will be willing to pay less for stocks.
Bond payments are listed in bond contracts. Although the Flow of Payments Net Payments is directly bound to the Company's earnings dropped the prices of the company's bonds as a result of the risk of financial reporting. This is because investors do not trust the company's high risk managers, so they are not sure that the company will be able to pay its debts.
The price reduction of bond prices issued by companies results in an increase in the price that the company has to pay for obtaining funding. Companies use bond sales to raise money to finance their activities. If the Investo isI will be willing to pay less for accepting the same future current of payments, then the company actually pays a higher interest rate. In this way, the risk of financial reporting is similar to the score of consumer loans in that it determines the interest rate that the company must agree to pay for the loan.