Why weren’t firms investing? Easier to monitor person investments lack of control, even if they didn’t want itLack of integration and efficiency of financial systems made this hardNo, this doesn’t seem like a macroeconomic problem, it just seems like the UK is suffering from a lack of corporate governance oNot 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 upModern cash flow is the managers who hold on to the money, in the UKs case with the industrialrevolution, it was the landowners who were causing the problemoThis 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 sooThe new industry could offer a higher yield but only because it exposed the investor to a high amount of riskLots of investments, it’s just not allocated efficientlyUs tech firms have a lot of free cash flowB. 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 borrowingsThinks that securities will be cheaper than bank borrowingoIgnoring high cost of issuing equity shares- must pay shareholder for risk oCompany 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 itSHOULD BE SKEPTICALEquity will be cheap when stock market is a bubble2. privatizationPublic participating in shares of ownershipImpossible without a functioning equity market (functioning if there’s a change in ownership through mergers and acquisitions) that provides liquidity and price discoveryoMost of the sales of equity shares from privatization comes the sale of a part of the company to arms-length investorsoThis 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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oThis 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 cultureWe 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 availablePrivatize to raise money, it will operate more efficiently would want foreign conglomerate utilityDon’t need equity could do private acquisition3. savings
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