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Unformatted text preview: (owners and managers are completely separate gropus) Managers run the firm, make daily decisions Owners expect to earn 0 return on their investment Conflict of interest due to the separation of ownership & management Agency relationship Shareholders- principal Managers- agent Managing managers 1. Compensation-bonuses-stock options- managers are shareholders 2. Threat of a takeover 3. Job security The market values a firm’s social responsibility Firm value: v0= E (top=infinity, bottom=t=1)of PV of all future cash flows Firm issue securities to financial market and firm get cash to invest from financial market Financial market earn return to investors and investors buy securities to financial market...
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- Spring '08
- Finance, fi rm, Shareholders- principal Managers- agent