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Effective competition and corporate disclosure : a critical study Devji, Razahussein Mohamedhussein Merali

Abstract

Economic activity in the United States and Canada is predominantly performed by corporations. They are by far the largest private employers of workers, the biggest investors and the predominant instrument of production. They are rapidly growing in size, are generating sufficient funds internally to carry out most of their expansion programs, and are diversifying into unrelated activities. Their affairs are increasingly managed by professional executives who have little, if any, stake in the risk capital. The shareholders, who are legally presumed to exercise control over the powers and actions of corporate executives, are normally too numerous and scattered so as not to be in a position to have a significant influence on the policies of the corporations. The changing role of the corporations has led to considerable discussion about the legitimacy of corporate power and the accountability of corporations for their actions which affect others such as consumers, workers, suppliers and the public. As part of this general accountability, the question is raised about the type and extent of information that corporations should be required to disclose to persons and groups who save no contractual relationship with these corporations. Many businessmen, accountants, political theorists, economists, and lawyers have put forward their views about corporate disclosure which differ widely from one another. A principle reason for the divergent views about corporate disclosure is that they use different frames of references to base their arguments for or against disclosure of more information than is at present provided by corporations. This study is an attempt to use the normative model of 'Effective Competition' as a guide for the type and extent of disclosure to be made by corporations. An examination of current literature on competition suggested that the lines of demarcation for the normative model of 'Effective Competition' can be defined by reviewing the national objectives of the United States and Canada which form the framework for the model and by examining the main characteristics in the economy which reflect the structure of the model. The informational requirements of the main actors in the economy namely consumers, employers, workers, creditors, investors, government-run corporations, foreign firms dealing with the countries and various government agencies whose actions have a direct effect on other actors form the basis of specific recommendations made about the type and extent of disclosure that should be required from corporations operating in Canada.

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