BUSI 4609 Chapter Notes - Chapter 10: Capital Structure, Golden Parachute, Agency Cost
7 May 2018
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Chapter 10
1. Corporate governance
a. Set of mechanism to manage relationship of stakeholder
b. Determine/ control of strategic decision
2. Agency relationship
a. Shareholder and manager have different interest
b. Managerial opportunism
i. Self interest
ii. Attitude/ behavior
c. Agency cost: total incentive. Monitor/ enforce/ financial loss
because governance don’t guarantee total compliance
3. Governance mechanism
a. Ownership concentration
i. Large block shareholder increase incentive to monitor
closely
ii. Illegal for financial institution to hold board seats
iii. High influence of institutional owner
b. BOD
i. Composition of BOD
o Insider
o Related outsider don’t involve in day to day
operation
o Outsider
ii. Cons
o Eploit
o Lack of agreement
c. Executive compensation
i. Firm size> performance
ii. Don’t show executive wealth
iii. no expense option
d. Market for corporate control
i. Buy / takeover firm
ii. Change regulation
iii. Defense tactic
o Asset restructuring
o Change in financial structure
o Shareholder approval
Success
Effect on wealth
Capital structure change
Medium
Inconclusive
Corporate charter
amendment
Low
-
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