Corporate Assignment Abdisamad

Topics: Stock market, Stock, Institutional investor Pages: 17 (3641 words) Published: November 18, 2014


Student ID :
CGSSO00015316
Student Name :
Abdisamad Abdullahi Abdulle
Course Code :
BMCF5103
Course Name :
Corporate finance
Program :
Master Of Business Administration MBA
Semester :
Five
Assignment :
Answers
Facilitator :
Ibraahim Moh’ud Hamud
Date due :
12 Nov, 2014
Submission Date :
12 Nov, 2014

1.0 QUESTIO N ONE

1.1
Introduction
3
1.2
Value maximization and other goals

3
1.3
Customer and employee safety
4
1.4
General goodness of society
4
1.5
Conclusion
5

2.0 QUESTION TWO
2.1
Introduction
6
2.2
Corporate ownership

6
2.3
Agency problem
8
2.4
Conclusion
8

3.0 QUESTION THREE
3.1
Introduction
9
3.2
The emergence of institutional investors

9
3.3
Implications of institutional investors on agency problem
10
3.4
Implications of institutional investors on control
11
3.5
Conclusions
12

4.0 QUESTION FOUR
4.1
Introduction
12
4.2
The goal of financial management

13
4.3
Conclusion
14

REFERENCE 16

QUESTION ONE
Can the goal of maximizing the value of the stock conflict with other goals such as avoiding unethical or illegal behavior? In particular, do subjects like customer and employee safety, the environment and the general good of society fit in this framework, or are they essentially ignored? Think of some specific scenarios to illustrate your answer. 1.0 ANSWER

1.1 INTRODUCTION
Value maximization would probably be the most commonly cited business goal, but this is not the only thing to create. Business and service organizations exist to create valued goods and services that people need or desire. In this piece of writing first, I would look if maximizing the value of stock conflicts with other goals of the organization. Second, I will examine how it effects the value maximization on different subjects like customer and employee safety, the environment and the general good of society. Last, I will illustrate some specific scenarios with my answer. 1.2 VALUE MAXIMIZATION AND OTHER GOALS

According to james (2005) Management’s goal should be to maximize shareholder wealth, which can be translated maximizing the value of the stock. In a detailed sentence “maximizing the value of the stock,” means maximizing the true long run value of the firm. Commonly, good managers understand the importance of ethics, and they recognize that maximizing long-run value is consistent with being socially responsible. On the other hand, some businesses may focus on maximizing shareholders value and controlling operating costs and never compromise the other goals such as employee safety (Sokalsky, 2014).

1.3 CUSTOMER AND EMPLOYEE SAFETY
In stakeholder’s theory, managers must make decisions so as to take account of the interest of all stakeholders in a firm such as employees and customers. This theory may advocates the refuse of how to make the necessary tradeoff among competing interest and leaves managers with a theory that makes it impossible for them to make purposeful decisions (Jensen, 2000). Many corporate leaders and financial forecasters would agree that long-term shareholder value is generated by constantly providing value to customers and employees in an economically profitable manner. Employees and customer value governance is a strategy to reach this corporate importance. It ensures growth is both profitable and capital efficient while building reliable indicators of future performance (Frazier Mcdonough, 2005). According to Damodaran (2013) Maximizing stock value is not incompatible with meeting customers and employee needs because employees are the stockholders in many firms. Firms that maximize the stock value are generally legally can afford to...
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