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Typical maturity is 10 years typical vesting period

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Unformatted text preview: nable: the option can’t be sold. » Typical maturity is 10 years. » Typical vesting period is 3 years. 20 Concentrated Ownership Another way to alleviate the agency Another problem is to concentrate shareholdings problem In the United States and the United In Kingdom, concentrated ownership is NOT rare rare Elsewhere in the world concentrated Elsewhere ownership is the norm ownership 21 Concentrated Ownership Alignment vs. Entrenchment effects 22 Debt: reducing free cash flows If managers fail to pay interest and principal to If creditors, the company can be forced into bankruptcy and managers may lose their jobs bankruptcy Borrowing can have a major disciplinary effect Borrowing on managers, motivating them to curb private perquisites and wasteful investments and trim bloated organizations bloated Excessive debt creates its own agency Excessive problems, however problems, – Debtholder vs equity holder 23 The Market for Corporate The Control Control If a management team is really out-of-control over If time the share price will decline time At some point, a corporate raider will buy up At enough shares to gain control of the board enough Then the raider either fires the feckless managers Then and turns the firm around or he sells everything for the break-up value for Either way, the old managers are out of a job The threat of this may keep them in line 24 Overseas Stock Listing Companies domiciled in countries with Companies weak investor protection can bond thems...
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