《财务管理专业英语》教学课件02.pptVIP

2.1 Types of Business Organization 2.2 Corporate Structure of the Company 2.3 Objectives of Financial Management 2.4 Separation of Ownership and Control 2.5 Agency Relationships TYPES OF BUSINESS ORGANIZATION Sole Proprietorship an unincorporated business owned by one person Partnership owned by two or more individuals (called partners) Limited partnership——general partners limited partners Corporation a legal entity separate from its owners CORPORATE STRUCTURE OF THE COMPANY OBJECTIVES OF FINANCIAL MANAGEMENT Stakeholder Theory managers should make decisions that take into account the interests of all of a firm’s stakeholders Value or Wealth Maximization to maximize long-term firm value or wealth SEPARATION OF OWNERSHIP AND CONTROL The entity which owns the company (shareholders) is often not the one that controls the company’s resources (management) SEPARATION OF OWNERSHIP AND CONTROL The entity which owns the company (shareholders) is often not the one that controls the company’s resources (management) SEPARATION OF OWNERSHIP AND CONTROL Four major downsides agency problem free-riding problem increased costs of information gathering. information asymmetry AGENCY RELATIONSHIPS Agency problem ? Managers may waste corporate cash and resources by engaging in negative net present value (NPV) acquisitions or investments to satisfy their desire to build an empire. ? Less ominous, but no less costly, managers may squander corporate funds on excessively lavish corporate offices and jets. ? More recently managers have been known to increase share prices (not value) by using “creative accounting”, so as to exercise their stock options (e.g. Enron). AGENCY RELATIONSHIPS Agency costs are the total costs resulting from the agency problem. ? management takes actions that negatively influence the wealth of shareholders,or when. ? the shareholders monitor the management’s actions to ensure compliance. As defined by Jensen and Me