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CFS C1TX: What is the firm objectives (Intro (a. concerns about the…
CFS C1TX: What is the firm objectives
Intro
a. concerns about the question what is the objective of the business
b. unless the we know the answer this question, we can't make sensible financial decision
A common purpose
Intro
a. Who gets any surplus?
ex
i. Shareholder supremacy
ii. workers's supremacy
iii. stakeholder approach
b. Variety of objectives
ex
i. achieving a target market share
ii. keeping employee agitation to a minimum
iii. survival
iv. creating an ever expanding empire
v. maximisation of profit
vi. maximisation of long-term shareholder wealth
The assumed objective for finance
ex
a. The practical reasons
b. The theoretical reasons
i. the risk bearers take the prize
ii. alternatives can be bad for all stakeholders (in the long run)
iii. rights of ownership
c. corporate social responsibility
d. motivation and obliquity
What is shareholder value
Profit maximisation is not the same as shareholder wealth-maximisation
ex
a. prospects
b. risk
c. accounting problems
d. communication
e. additional capital
corporate governance
ex
a. annual general meeting
b. corporate governance regulations
c.There are various other (complementary) methods used to try to align the actions of senior management with the interests of shareholders, that is to achieve 'goal congruence':
linking rewards to shareholders wealth improvement
sackings
selling shares and the takeover threat
information flow
What happens if control over directors is weak?
conclusion