FINE 482 Chapter Notes - Chapter 2: Initial Public Offering, Stock Market
Document Summary
Most commercial enterprises have their origins with either: entrepreneurs (private entities), governments (public entities). Regardless of origin, if they remain commercial in focus, they may over time choose to go public via an initial public offering (ipo). Rest of world: controlling shareholders (government, institutions, families, and consortiums). When a firm becomes widely owned, it is managed by hired professionals. An agency problem arises (cid:449)he(cid:374) (cid:373)a(cid:374)agers" i(cid:374)terests (cid:373)a(cid:455) (cid:374)ot (cid:271)e alig(cid:374)ed (cid:449)ith the i(cid:374)terests of o(cid:449)(cid:374)ers. Anglo-american markets belie(cid:448)e that a fir(cid:373)"s o(cid:271)je(cid:272)ti(cid:448)e should follo(cid:449) the shareholder wealth maximization (swm) model. The firm should strive to maximize the return to shareholders as measured by the sum of capital gains and dividends, for a given level of risk. Non-anglo-american markets strive to maximize long-term returns to equity for shareholders. However, they also consider the interests of stakeholders including employees, customers, suppliers, creditors, government, and community.
