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Week 11: Corporate Governance (Shareholders Actions (Problems (p.16) …
Week 11: Corporate Governance
Corporate governance and Agency conflict
Corporate governance
: shareholders want to ensure that the managers they hire will try their best to maximize the shareholder's wealth
Monitoring by the Board of Directors
Types of Directors
Outside directors (gray): family members or representative of the bank or alumni
Outside directors (
independent
): watchdog, to protect shareholder's interest
Approve major firm decisions
Set CEO incentives to improve firm value
Monitor and evaluate CEO performance
Problems
(p.8)
Incentive: reputation
how to form an effective board? (p.9)
board size and performance (odd number of directors)
Inside directors
Managerial Ownership
problems
large ownership increases managerial entrenchment
large ownership also increases managerial risk aversion => reduce investment (risky)
Compensation Policies
grants of stock or stock options to executives => gives managers the incentives to increase the stock price
problems (p.14)
backdating (not really sure): choosing the grant date of a stock option
retroactively
Shareholders Actions
Shareholder Approval
Shareholder Vote
Problems (p.16)
Proxy contests (extremely costly)
Can shareholders be the directors?
Regulation (p.17)
Market for corporate control
takeover: can replace poorly performing management
Other monitors
Securities analysts
Lenders
Conflict between
controlling shareholders
and
minority shareholders
Dual Class Shares
Voting right
CFs right (dividend)
Pyramid Structure
Pyramid Structures and Tunneling