Chapter 4
Financial Goals and Corporate Governance
◼ Learning Objectives
1. Examine the different ownership structures for businesses globally, and how this impacts
the separation between ownership and management—the agency problem
2. Explore how financial management differs between the publicly traded and the privately
held firm, and why there is a trend toward private ownership globally
3. Evaluate the multitude of goals, structures, and trends in corporate governance globally
◼ Chapter Outline
I. Ownership
A. Types of Ownership
B. Business Ownership
C. Separation of Ownership from Management
D. The Goal of Management
E. Shareholder Capitalism
Agency Theory
Long-Term versus Short-Term Value Maximization
F. The Stakeholder Capitalism Model
Market Efficiency
Risk
Single versus Multiple Goals
The Scorecard
G. Operational Goals
Returns to Investors in Publicly Traded Firms
Returns to Owners of Privately Held Firms
Operational Goals for MNEs
Consolidated Profits
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5. Corporate Goals: Stakeholder Capitalism Maximization (SCM). Explain the assumptions
and objectives of the stakeholder capitalization model.
6. Management’s Time Horizon. Do shareholder wealth maximization and stakeholder
capitalism have the same time–horizon for the strategic, managerial, and financial
objectives of the firm? How do they differ?
7. Operational Goals. What should be the primary operational goal of an MNE?
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8. Financial Returns. How do shareholders in a publicly traded firm actually reap cash flow
9. Dividend Returns. Are dividends really all that important to investors in publicly traded
companies? Aren’t capital gains really the point or objective of the investor?
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10. Ownership Hybrids. What is a hybrid? How may it be managed differently?
11. Corporate Governance. Define corporate governance and the various stakeholders
involved in corporate governance. What is the difference between internal and external
governance?
12. Governance Regimes. What are the four major types of governance regimes and how do
they differ?
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13. Governance Development Drivers. What are the primary drivers of corporate governance
across the globe? Is the relative weight or importance of some drivers increasing over
others?
14. Good Governance Value. Does good governance have a “value” in the marketplace? Do
investors really reward good governance, or does good governance just attract a specific
segment of investors?
15. Shareholder Dissatisfaction. If shareholders are unhappy with current leadership of a
firm—its actual management and control—what are their choices?
Chapter 4 Financial Goals and Corporate Governance 27
© 2018 Pearson Education, Inc.
is more difficult.
d. Initiate a takeover. Under the SWM model it is possible to accumulate sufficient shares to
take control of a company. This is usually done by a firm seeking to acquire the target
firm making a tender offer for a sufficient number of shares to acquire a majority position
on the board of directors. Under the CWM model acquisition of sufficient shares to bring
about a takeover is much more difficult, in part because non-shareholder stakeholder
wishes are considered in any board action. (One can argue as to whether the long-run
interests of non-shareholding stakeholders are served by near-term avoidance of
unsettling actions.) Moreover, many firms have disproportionate voting rights because
of multiple classes of stock, thus allowing entrenched management to remain.
16. Emerging Markets Corporate Governance Failures. It has been claimed that failures in
corporate governance have hampered the growth and profitability of some prominent
firms located in emerging markets. What are some typical causes of these failures in
corporate governance?
17. Emerging Markets Corporate Governance Improvements. In recent years, emerging
market MNEs have improved their corporate governance policies and become more
shareholder-friendly. What do you think is driving this phenomenon?