Investors also have the option of exit if they dont agree with management

Investors also have the option of exit if they dont

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- Investors also have the option of exit if they don’t agree with management actions, whereas pension funds are more likely to agitate for change. - Regulations make it impossible for mutual funds or insurance companies to play much of a role. - Private pension funds are generally sponsored by corporations themselves, and managers encourage them not to take an active role in the governance of other corporations (avoid conflict of interest). - Public and nonprofit pension funds are left to push for change - Regulation has supported this by considering voting rights as part of a pension plan’s assets and considering it to be part of the plan’s fiduciary responsibility to vote its shares. - Why would there be a percent cap on how much of a company they can own - Managers did not want concentrated shareholders - Mutual fund -> want better returns quickly
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- Monitoring could be too long-term to be beneficial for mutual funds - Liquidity -> do not want to get rid of long-term investments, insider trading, others freeride off of you - Difference from pension funds: liquidity is not an issue 3. Does regulation play any role in this? - Yes, regulation prevents mutual funds and insurance companies from taking an active role, but encourages pension funds to. - The separation of ownership from control limits the ability of large shareholders to trade stock (insider trading) or do business with the company, and expose large shareholders to potential prosecution if they take an active role. 4. Can active investors help address the problem? - Yes, active investors can increase the accountability of the firm to its shareholders, both by introducing ideas for adding value and by the threat of leaving or pushing for change. This would help ensure efficiency. - Markets are said to be efficient because millions of informed investors continuously think about, research and analyze companies, markets and securities. - Thus, all possible information and insight is said to be always contained in securities’ prices at all times. - Who else has seats on the board? Mutual funds, pension funds - Presence of active investor -> active investors do all the work and ask for one thing - Not really insider trading, benefits them as well as other funds C. Read “The need for greed” (Item 15.2) and “Taken for a ride” (Item 15.3) and “Curiosity has its merits…” (Item 15.16) and answer the following: Summary of 15.2: - Shareholders must pay chief executive enough to lure him away from other firms - Motivate middle managers by making them compete for promotions; pay chief executive to encourage him as well as encourage his subordinates - More than half of chief executive’s pay is performance-related bonuses, shares, or other long-term incentives - Need information: need to know what decisions are best; reward executive if they do what is best - Might avoid making investments when faced with too many risks - Solution: Award share options instead of shares (allow executive to reap rewards of boosting share price while sheltering them from failure) -
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