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Unformatted text preview: 2. Direct Eﬀects and Strategic Eﬀects of Organizational Decisions 1. Games with Strategic Substitutes/Strategic Complements • Big Picture M&S 452 — Strat and Org
c 2008 Scott Schaefer 30 “By issuing debt in exchange for stock, companies bond their managers’ promise
to pay out future cash ﬂows in a way that simple dividend increases do not.” “A central weakness and source of waste in the public corporation is the conﬂict
between shareholders and managers over the payout of free cash ﬂow — that
is, cash ﬂow in excess of that required to fund all investment projects with
positive net present values when discounted at the relevant cost of capital. For
a company to operate eﬃciently and maximize value, free cash ﬂow must be
distributed to shareholders rather than retained. But this happens infrequently;
senior management has few incentives to distribute the funds, an...
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- Spring '14