1 / 8

Economics 434 Theory of Financial Markets

Economics 434 Theory of Financial Markets. Professor Edwin T Burton Economics Department The University of Virginia. Corporate Governance. What is the objective of a corporation (or any business)? Profit Maximization? Maximize Share Value? Benefit Stakeholders? Board of Directors

nimrod
Download Presentation

Economics 434 Theory of Financial Markets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Economics 434Theory of Financial Markets Professor Edwin T Burton Economics Department The University of Virginia

  2. Corporate Governance • What is the objective of a corporation (or any business)? • Profit Maximization? • Maximize Share Value? • Benefit Stakeholders? • Board of Directors • Elected by shareholders • Hire and fire the CEO • Audit Committee • Compensation Committee • Governance Committee

  3. Maximize Share Value • Since there is uncertainty • This means maximizing expected value • Of discounted future cash flows • This rules out diversification strategies (shareholders can do that on their own) • Stakeholder view is murky. Similar to governance patterns at tax free institutions

  4. Directors • Inside director • A company employee • Outside director • Not a company employee • NYSE requires a majority of directors to be “outside” directors • Directors are paid well • Re-elected at regular intervals

  5. Principle-Agent Problems • Board is supposed to “represent” the interests of the shareholders – “fiduciary” duty • But, do they? • Reasons to wonder: • Executive compensation • Mergers and acquisitions

  6. Other Principal-Agent Problems • Shareholder might be • Pension fund • Endowment • May not be paying attention to what the board may be doing • May have Principal-Agent problems of their own

  7. ISS • Classified board • Means terms are staggered • ISS proposes • One year terms • All board members elected annually • Say on pay by shareholders

  8. The End

More Related