FIN 3604 Lecture Notes - Lecture 1: Product Lifecycle, Pizza Hut, Agency Cost
Document Summary
Multinational corporations (mncs: firms that engage in some form of international business, goal is to maximize shareholder wealth* International financial management (international investing and financing decisions) Agency problem: the (cid:272)o(cid:374)fli(cid:272)t of goals (cid:271)et(cid:449)ee(cid:374) a fir(cid:373)"s (cid:373)a(cid:374)agers a(cid:374)d shareholders, e(cid:454)a(cid:373)ple: a de(cid:272)isio(cid:374) to e(cid:454)pa(cid:374)d a su(cid:271)sidiar(cid:455) (cid:373)a(cid:455) (cid:271)e (cid:373)oti(cid:448)ated (cid:271)(cid:455) a (cid:373)a(cid:374)ager"s desire to receive more compensation rather than to enhance the wealth of shareholders. Subsidiary example: location a: better choice, lo(cid:272)atio(cid:374) b: (cid:373)a(cid:374)ager (cid:272)hooses (cid:271)e(cid:272)ause it"s his ho(cid:373)eto(cid:449)(cid:374) Internal reporting process that can be easily monitored by executives and the board of directors. Centralized management: can reduce agency problems because it reduces the power of subsidiary managers, less informed parent managers may make poor decisions for the subsidiary. Decentralized management: more likely to result in higher agency costs, gives more control to those (cid:373)a(cid:374)agers (cid:449)ho are (cid:272)loser to the su(cid:271)sidiar(cid:455)"s operatio(cid:374)s a(cid:374)d environment.
