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2.0. Investor, Motivations of Lenders & Owners - Coggle Diagram
2.0. Investor, Motivations of Lenders & Owners
Financing
Issuer view
Equity
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Suitable:
- Creates dilution
- may be only option when issuer cash flows are absent or unpredictable or early-stage companies => khó vay
Risk: Lower
- Shareholders are not promised any distributions or repayments
- No contractual rights and cannot force the company into bankruptcy or liquidation proceedings
Debt
Risk: Higher
- Debtholders have legal rights to force the company to liquid assets or go bankrupt to meet its contractual obligations
- Bonds increase risk by increasing leverage
Suitable:
- Preferred for companies with predictable CF
- Avoids dilution of upside return and existing equity owners
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Investor view
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Equity
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Desired outcome: Maximize firm value (assets - liabilities)
favor action is that increase a company's potential growth
Investor perspective
Shareholders
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Would like the company to simply increase dividend payments and share repurchases with debt proceeds
Debthodlers
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Often rely on covenant to protect them against exploitive action (khai thác) and compromise the safety (gây nguy hiểm) of their investment
Primary stakeholders
Theory
Shareholder theory
The primary focus of corporate governance is the interest of the firm's shareholders => maximize the MV of firm's common equity
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Actors
Internal
BOD
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Interest/Influence:
- Have interest in compensation, bonuses
- Have a responsibility to protect the interests of shareholders and provide strategic direction
- Hire, fire and set the compensation of the firm senior manager
- Monitor financial performance and management
- Inside director: usually have conflicts of interest with shareholders
- Indenpendent directors: who have no material relationship with the company, may better protect minority shareholders' interests
Two-tie model:
- Management board: BOD
- supervisory board: is elected to oversee the activities of BOD
Staggered board: Only a fraction of the board is elected each year.
=> decrease the power of shareholders to enact a major overhaul (bất ổn) of the board
Managers
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Interest/ Influence:
- Under the oversight of BOD, are responsible for determining & implementing the stratefy of the corporation, and day-to-day operations
- Have interest in continuing employment and maximizing the total value of compensation tied on some measure of firm's performance
Connected
Shareholders
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Interest/Influence:
- Have a residual interest in the net assets of corporation after all liabilities have been settled
-> concern about ongoing profitability and growth of the firm
- Have voting rights
-> elect BOD -> effective control of the firm and its management
Debtholders
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Interest / Influence
- Public debtholders (bond): have little/no influence on firm's operations
- Private debtholders (bank): have direct access to company management and non-public information and a wider variation in their risk appetite, approach, behavior, and relationships with borrowers -> great influence over the company
Employees
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Interest / Influence
- Have an interest in rate of competitive compensation and benefits, development opporturnities, job security, and a safe and healthy work environment
- concern the sustainability and success of the firm
Suppliers
Stake: Trading profits / Financial strength, solvency
Interest / Influence:
- Have an interest preserving an ongoing relationship with the firm, in the profitability of their trade with the firm, and in the growth and ongoing stability of the firm
- Usually short-term creditors of the firm
Customers
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Interest / Influence:
- Have an interest in a high quality with reasonable price -> desired ongoing support, product guarantees, and after-sale service
- Increasingly care about environmental and social responsibilities of corporations
External
Government
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Interest / Influence:
- Have an interest in having corporations act within the guidelines of the law on a consistent basis -> protect the economy and the interests of the general public
Environmental, social and governance fators
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Relationship of ESG
- (1) The material financial impact of ESG factors on corporate issuers has risen (disasters, social controversies...)
- (2) Government stakeholders continue to prioritize climate change and social policies
- (3) Interest in the environmental and social impacts of investment has grown
Negative externalities arise when a company or its investors do not bear the full cost of its action
Details
Governance
- Should have adequate checks to ensure that managers act ethically, lawfully, and in the interest of shareholders (via Ownership and voting structure, board skills, compensation, risk management effectiveness...)
Evaluation of ESG Risks
- Equity investors bear the brunt of the risk (chịu đựng ránh nặng rủi ro) from adverse outcomes
- Debt investors have less exposure to adverse events unless they result in losses large enought to bring about defaults
Social Factors
- Contribute to a company's image: how firm treats its employees, customers, and the communities
- Decrease social risk can reduce a company's costs through higher employee productivity, lower turnover, increased customer loyalty, and less risk of litigation
Environmental Factors
- Industries with natural resource intensive have a direct impact on the environment, but others may have indirect impacts
- With climate change, companies may face:
- Physical risk: adverse effects on assets ( damage to or destruction) or operations if severe weather increases in frequency
- Transition risk: loss related to gov regulations or consumer choices require switching from high-carbon to low-carbon activities
- Stranded assets: are those that become unviable due to such changes (oil-producers) tài sản hết giá trị do đổi xu hướng