Why werent firms investing easier to monitor person

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Why weren’t firms investing? Easier to monitor person investments lack of control, even if they didn’t want it Lack of integration and efficiency of financial systems made this hard No, this doesn’t seem like a macroeconomic problem, it just seems like the UK is suffering from a lack of corporate governance o Not a matter of how much savings and investments there is, but that there are these big firms that are holding on to their money- it’s a matter of where the capital ends up Modern cash flow is the managers who hold on to the money, in the UKs case with the industrial revolution, it was the landowners who were causing the problem o This required discussion and collaboration among landowners- they all had better incentives to invest in this new industry but the worry of risk kept them from doing so o The new industry could offer a higher yield but only because it exposed the investor to a high amount of risk Lots of investments, it’s just not allocated efficiently Us tech firms have a lot of free cash flow B. Read the extract from “Securities market development in Zambia: A case study,” (Item 15.5). The author gives three reasons why a securities (equities) market is important for Zambia. In each case, are his expectations of the what an equity market will do reasonable? 1. raising of capital (is it a “cheaper form of capital”?) Businesses have raised capital through loans and bank borrowings Thinks that securities will be cheaper than bank borrowing o Ignoring high cost of issuing equity shares- must pay shareholder for risk o Company must ultimately bear the costs of corporate governance Firms that must turn to the equity market are generally startups- they won’t be able to make profits for some time. Can show investors that they may be a viable option- if there was a firm that should have been making profits and they seek equity shares it shows that there is something wrong with it SHOULD BE SKEPTICAL Equity will be cheap when stock market is a bubble 2. privatization Public participating in shares of ownership Impossible without a functioning equity market (functioning if there’s a change in ownership through mergers and acquisitions) that provides liquidity and price discovery o Most of the sales of equity shares from privatization comes the sale of a part of the company to arms-length investors o This leaves the burden of corporate governance with the government in the situation where they retain ownership of a large part of the company
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o This expectation of creating the Zambian equity market will be successful if the companies can handle and manage the costs of corporate governance and if there is a large enough investor base with a sufficient investment culture We need to look at whether these public offerings by the government need to be publicly issued and traded in Zambia as opposed to the host of other options available Privatize to raise money, it will operate more efficiently would want foreign conglomerate utility Don’t need equity could do private acquisition 3. savings
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