To critically think about: Whether the act of the management is in the interest of the shareholders. Introduction: The managers of the firm act in the interest of the shareholders based on the following two factors. First factor : The goals of the management are aligned to the shareholders goals. Second factor: The replacement of the managers for not pursuing stockholders’ goals is the second factor. Situation: Person X owns stock in a company. The present share price is $25. There is an announcement made by another company stating that it needs to purchase Person X’s company. It also says that it will pay $35 per share to obtain all the outstanding stocks. Person X’s management starts fighting for the hostile bid.

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Chapter 1, Problem 6CQ

Summary Introduction

To critically think about: Whether the act of the management is in the interest of the shareholders.

Introduction:

The managers of the firm act in the interest of the shareholders based on the following two factors.

First factor: The goals of the management are aligned to the shareholders goals.

Second factor: The replacement of the managers for not pursuing stockholders’ goals is the second factor.

Situation:

Person X owns stock in a company. The present share price is $25. There is an announcement made by another company stating that it needs to purchase Person X’s company. It also says that it will pay $35 per share to obtain all the outstanding stocks. Person X’s management starts fighting for the hostile bid.

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