FIN 4213 Lecture Notes - Lecture 2: Franchising, Cash Flow, Agency Cost
Document Summary
Managers are expected to make decisions that will maximize stock price. Agency costs - cost of ensuring that managers maximize shareholder wealth. Costs are normally higher for mncs than for purely domestic firms: More difficult to monitor managers of distant subsidiaries. Foreign managers raised in different cultures may not follow uniform goals. Sheer size of mncs can create agency problems. Some non-us managers tend to downplay short-term effects of decisions. Parent should clearly communicate the goals for each subsidiary to ensure managers focus on maximizing the value of mnc, not of their subsidiaries. Entire management of the mnc must be focused on maximizing the shareholder wealth. Ensures a more transparent process for managers to report on the productivity and financial condition of their firm. Parent managers control foreign subsidiaries, reduces power of subsidiary managers. More control to subsidiary managers who are closer to operations and environment. Specialization increases production efficiency, reason for international business.
