RSM332H1 Lecture Notes - Lecture 1: Fixed Income, Derivatives Market, Financial Intermediary
Document Summary
Are financial markets efficient: corporate finance (focus of rsm333) Managing which long term (fixed) assets to invest in: using debt or equity to finance investments, which investments should company take, short term cash flow to pay bills. The goals of a corporation: must know goal of corporation to decide on correct investment. In finance, goal is to maximize value of firm: this maximizes value for stock and debt holders. Role of management: managers are agents working on behalf of shareholders, management generally act in shareholder interest. Must align incentives of manager with shareholder"s goals. Ceo may strive for: agency problems arise when goals of management and stockholders diverge, empire building, strives to manage a huge conglomerate. Is not necessarily in shareholder interest: short term profits to trigger bonuses, personal benefits. I. e. having private company jet at disposal: agency costs occur because of agency problems. Direct costs from suboptimal decisions not in shareholder interest.
