In Recent Years Large Financial Institutions Such As Mutual Funds And Pension Funds Have Been Becoming The Dominant Owners Of Stock In The United States And These Institutions Are Becoming More Active In Corporate Affairs. What Are The Implications Of

agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?

7. Primary versus Secondary Markets You've probably noticed coverage in the financial press of an initial public offering (IPO) of a company's securities. Is an IPO a primary-market transaction or a secondary-market transaction?

8. Auction versus Dealer Markets What does it mean when we say the New York Stock Exchange is an auction market? How are auction markets different from dealer markets? What kind of market is Nasdaq?

9. Not-for-Profit Firm Goals Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate?

10. Goal of the Firm Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.

11. Ethics and Firm Goals Can our goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety, the environment, and the general good of society fit in this framework, or are they essentially ignored? Try to think of some specific scenarios to illustrate your answer.

12. International Firm Goal Would our goal of maximizing the value of the stock be different if we were thinking about financial management in a foreign country? Why or why not?

13. Agency Problems Suppose you own stock in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 per share to acquire all the outstanding stock. Your company's management immediately begins fighting off this hostile bid. Is management acting in the shareholders' best interests? Why or why not?

14. Agency Problems and Corporate Ownership Corporate ownership varies around the world. Historically, individuals have owned the majority of shares in public corporations in the United States. In Germany and Japan, however, banks, other large financial institutions, and other companies own most of the stock in public corporations. Do you think agency problems are likely to be more or less severe in Germany and Japan than in the United States? Why? In recent years, large financial institutions such as mutual funds and pension funds have been becoming the dominant owners of stock in the United States, and these institutions are becoming more active in corporate affairs. What are the implications of this trend for agency problems and corporate control?

15. Executive Compensation Critics have charged that compensation to top management in the United States is simply too high and should be cut back. For example, focusing on large corporations, Millard Drexler of clothing retailer The Gap has been one of the best compensated CEOs in the United States, earning about $13 million in 2001 alone and almost $400 million over the 1996-2001 period. Are such amounts excessive? In answering, it might be helpful to recognize that superstar athletes such as Tiger Woods, top entertainers such as Bruce Willis and Oprah Winfrey, and many others at the top of their respective fields earn at least as much, if not a great deal more.

PART ONE Overview of Corporate Finance

S&P Problems

STANDARD SPOOR'S

1. Industry Comparison On the Market Insight Home Page, follow the "Industry" link at the top of the page. You will be on the industry page. You can use the drop down menu to select different industries. Answer the following questions for these industries: Airlines, Automobiles, Biotechnology, Computers (Software & Services), Homebuilding, Manufacturing (Diversified), Restaurants, Retail (General Merchandise), and Telecommunications (Cellular/Wireless).

a. How many companies are in each industry?

b. What are the total sales for each industry?

c. Do the industries with the largest total sales have the most companies in the industry? What does this tell you about competition in the various industries?

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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Responses

  • madihah
    Why agency problem are less severe in Germany?
    8 years ago
  • Aila
    Do you think agency problems are likely to be more or less severe in Germany and Japan?
    8 years ago
  • Corrado
    What are the implications of this trend for agency problems and corporate control?
    7 years ago
  • winta
    What does it mean when we say the New York Stock Exchange is an auction market?
    8 years ago
  • Henri Lohtander
    Can goal of maximizing value of stock conflict with other goals of avoiding illegal behavior?
    7 years ago

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