Lecture 2 Flashcards
(13 cards)
Types of Agency cosys
Monitoring costs - Ensuring order costs
Signaling/Bonding costs - Assure principals Agents won’t act against their interests. [Signaling by paying dividents]
Residual costs - own interest satisfaction
Shirking meaning
Avoiding work, slacking off
Management entrenchment meaning
Managers making themselves unreplacable in the company
Tunneling meaning
Transfer of assets and profits out of firms for the benefit of those who control them (Favoring companies owned by themselves or relatives, Excessive compensation, managerial theft)
Poison pill meaning
Allowing existing shareholders to purchase extra shares at discout - to dilute shares
Golden parachute meaning
Give generous payment to executives after accquisition
Staggered board meaning
Classify board to prevent board being replaced at once
Ways to protect management control rights (anti-takeover mechanisms)
-Poison pills
-Golden parachute
-Staggered board
-Require supermajority
Empire building meaning
attempting to increase the size and scope of an individual or organization’s power and influence
Managerial incentives for empire building
- Prestige of managing a bigger company
- Job security
- Complexity of firm structure frustrates
monitoring
Managerial incentives for accounting frauds
-Emphasize good news
-Hide or delay bad news
-Inflate current profits at the expense of future profits
Who was Isaac le Maire
-First shortseller and shareholders activist (limited term for directors, independent auditors, equal voting rights, financial disclosure)
Relative performance evaluation meaning (Ceo compensation)
Compare results to industry peer group performance
