EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Question
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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