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3 Jan 2018

Explain why corporate management has become increasingly sensitive to the desires of large institutional investors

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Investors generally can make one vote for each share of stock they hold. TIAA-CREF is the largest institutional shareholder in the United States; therefore, it holds many shares and has more votes than any other organization. Traditionally, this fund has acted as a passive investor, just going along with management. However, in 1993, it mailed a notice to all 1,500 companies whose stocks it held that henceforth it planned to actively intervene if, in its opinion, management was not performing well. Its goal was to improve corporate boards to appoint a majority of independent (outside) directors; and it stated that it would vote against any directors of firms that " don't have an effective, independent board that can challenge the CEO."

In the past, TIAA-CREF responded to poor performance by "voting with its feet," which means selling stocks that were not doing well. However, by 1993, that position had become difficult to maintain for two reasons. First, the fund invested a large part of its assets in "index funds," which hold stocks in accordance with their percentage value in the broad stock market. Furthermore, TIAA-CREF owns such large blocks of stocks in many companies that if it tried to sell out, doing so would severely depress the prices of those stocks. Thus, TIAA-CREF is locked in to a large extent, which led to its decision to become a more active investor.

a. Is TIAA-CREF an ordinary shareholder? Explain.

b. Due to its asset size, TIAA-CREF owns many shares in a number of companies. The fund's management plans to vote those shares. However, TIAA-CREF is owned by many thousands of investors. Should the fund's managers vote its shares, or should it pass those votes, on a pro rata basis, back to its own shareholders? Explain.

Contemplating an Initial Public Offering

Recall that if the economy continues to be strong, Carson Company may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. It would need financing to expand and accommodate the increase in production. Recall that the yield curve is currently upward sloping. Also recall that Carson is concerned about a possible slowing of the economy because of potential Fed actions to reduce inflation. It is also considering issuing stock or bonds to raise funds in the next year.

a. If Carson issued stock now, it would have the flexibility to obtain more debt and would also be able to reduce its cost of financing with debt. Why?

b. Why would an IPO result in heightened concerns in financial markets about Carson Company’s potential agency problems?

c. Explain why institutional investors, such as mutual funds and pension funds, that invest in stock for longterm periods (at least a year or two) might prefer to invest in IPOs rather than to purchase other stocks that have been publicly traded for several years.

d. Given that institutional investors such as insurance companies, pension funds, and mutual funds are the major investors in IPOs, explain the flow of funds that results from an IPO. That is, what is the original source of the money that is channeled through the institutional investors and provided to the firm going public?

3) Within the field of management accounting, as in any other professional area, one must constantly be adapted to global and environmental issues such as BP oil spill in The Gulf Of Mexico .In an increasingly global economy, effective management of environmental cost and performance may become a source of competitive advantage.

Required:

a)What is environmental accounting

b) How is Environmental accounting management used in decision making?

c) What is your opinion on the above statement? Clearly state your reason

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