Class2&3 - Part1

Class2&3 - Part1 - shareholder value Threat of...

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Business Organizations and   Financial Markets
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Forms of Business  Organization in the U.S. Sole Proprietorship Partnership General Limited Corporation C-Corp S-Corp Limited Liability Company
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Sole Proprietorship
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Partnership
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Corporation
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The Agency Problem Agency relationship Principal hires an agent to represent his/her interests Stockholders (principals) hire managers (agents) to run  the company Agency problem Conflict of interest between principal and agent Potential Solution Incentives should be aligned Compensation plans that tie manager’s personal wealth to 
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Unformatted text preview: shareholder value Threat of takeover can also lead to better management Financial Markets and the Corporation Cash Flows to and from the firm Firms issue shares Firms invest in assets Firms repay debt-holders, reinvest into the firm, pay to stakeholders and dividends to shareholders Goal of Financial Management What should be the goal of a corporation? Maximize profit? Minimize costs? Maximize market share? Maximize the current value of the companys stock, i.e. shareholder value!!!...
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Class2&3 - Part1 - shareholder value Threat of...

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