◾ Managers' previous performance will impact upon how much remuneration they command in future period, either from their current employer or elsewhere.

✴ An underperforming organization will be taken over by another entity that will subsequently replace the existing management team.

⭐ Even in the absence of regulation, organizations would still be motivated to disclose both good and bad news about their financial position and performance.

🔴 Regulation is deemed to be an instrument to create such confidence.

🔷 Accounting information is a public good. Once available, people can see it without paying and can pass it to the others-free riders.

HOW TO CAPTURE?
▪ Capture is said to occur if the regulated interest controls the regulation and the regulated agency, or

▪ If the regulated parties succeed in coordinatng the regulatory body's activities so that their private interest is satisfied. or,

▪ If the regulated party somehow manages to neutralize or ensure non-performance by the regulating body.

▪ Co-opting the regulators into seeing things from their own perspective and thus giving them the regulation they want.

▪ If quite independently of the formal or conscious desires of the regulators or the regulated parties, the basic structure of the reward system leads neither venal nor incompetent regulators inevitably to a community of interests with the regulated party.

◾ Even in the absence of regulations, managers will be encouraged to adopt strategies to maximize the value of their organization and these strategies would include providing an optimal amount of financial accounting information.

✴ Managers would be motivated to increase the firm value to minimize the likelihood that outsiders could seize control of the organization at low cost.

⭐ The failure to provide information is viewed in the same light as providing bad information.

⭐ The view being that in the absence of disclosure the capital market will assume that the organization is a 'lemon'.

⭐ Provides an incentive for managers to release information in the absence of regulation, as failure to do o will have implications for the manager's wealth

🔷 In the absence of sufficient information about an organization then such an organization will be considered to be higher risk, and riskier organizations find it relatively more expensive to attract capital.

🔷 When other individuals can receive the goods without purchasing, the price system cannot function properly. So, market failure occurs.

🔷 This perspective assume that if information is not produced there will be greater uncertainty about the performance of the entity and this will translate into increased costs for organization.

🔴 Society needs confidence that capital markets efficiently direct resources to productive assets.

🔴 The regulatory body is considered to be a neutral arbiter that represents the interests of the society in which it operates, rather than the private interests of the regulators.

🔴 Regulation is initially put in place to benefit society as a whole, rather than particular vested interests.

🔴 Regulation is supplied in response to the demand of the public for the correction of inefficient or inequitable market practices.