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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
problem is to concentrate shareholdings
problem In the United States and the United
Kingdom, concentrated ownership is NOT
rare Elsewhere in the world concentrated
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
creditors, the company can be forced into
bankruptcy and managers may lose their jobs
bankruptcy Borrowing can have a major disciplinary effect
on managers, motivating them to curb private
perquisites and wasteful investments and trim
bloated Excessive debt creates its own agency
problems, – Debtholder vs equity holder 23 The Market for Corporate
Control If a management team is really out-of-control over
time the share price will decline
At some point, a corporate raider will buy up
enough shares to gain control of the board
Then the raider either fires the feckless managers
and turns the firm around or he sells everything
for the break-up value
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
weak investor protection can bond
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This document was uploaded on 01/15/2014.
- Fall '14