Please enable JavaScript.
Coggle requires JavaScript to display documents.
MBM018 Corporate Finance - Chapter 2 (Maximise Stock Prices: (Real World…
MBM018 Corporate Finance - Chapter 2
Choosing the right Objective
The Classical Objective
Multiple Stakeholders, Conflicts of interest
Potential Side costs of value maximisation
Why Corp Finance focuses on Stock Price Maximisation
Maximise Stock Prices:
Best Scenariios
2) Lenders to the firm are fully protected by expropraition by stockholders
3) Managers do not attempt to mislead or lie
4) There are no social costs or benefits
1) Managers put aside on interest for maximising stockholder interest
Real World conflicts of interest
Stockholders and managers
The Annual Meeting
The Board of Directors
Lack of oversight
Lack of Experience
Insiders(Brown Nosing)
Personal interest in remuneration
Dual roles as CEO and Chairman
Ownership Structure
Voting rights
Founder/ Owners
Passive vs Active investors
Competing interests
Corporate cross holdings
Consequences of stockholder powerlessness
Fighting hostile aquisitions
Antitaker amendments
Paying too much on aquisitiions
Stockholders and Bondholders
Source of Conflict
Risky Investments
Additional debt
Additional Dividends/ buybacks
Firm and Financial Markets
The Information Problem
Financial markets assessments are not always rational or reasonable
Financial markets sometimes overreact based on some information
Insider movements
The market problem
The firm and society
Salvaging Flawed Objective
Conflict Resolution
Stockholders and managers
Stockholders and Bondholders
Restrict firm's investment policy
Restrict dividend Policy
Restrict additional Leverage
Firms and Financial Markets
Firms and society
A Compromise Solution: Value Maximisation with Price Feedback
Stakeholder responses in 3 waves
Group Activism
Market Innovations
Market Reaction
Blue Print for decision making
Focus first on long term value
Improve corporate governane
Increase transparency
Listen to the market
Tie rewards to long term value
Alternatives to Stock Price Maximisation:
Corporate Governance
Choosing an alternative objective
Maximise Market share
Profit Maximisation Objectives
Size/ Revenue Objectives
Limits to corporate Finance