Shareholder Wealth Maximization Model

2082 Words9 Pages
1. Define patient and impatient capitalism and discuss how each may lead to different decision-making in the shareholder wealth maximization model.

In a Shareholder Wealth Maximization model (SWM), a 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. Alternatively, the firm should minimize the level of risk to shareholders for a given rate of return. The SWM model assumes as a universal truth that the stock market is efficient. An equity share price is always correct because it captures all the expectations of return and risk as perceived by investors, quickly incorporating new information into the share price. Share prices are, in turn, the best allocators
…show more content…
In employment, employers is the principal may use piece rates/commissions, profit sharing, efficiency wages, performance measurement (including financial statements), the agent posting a bond, or the threat of termination of employment to align worker interests with their own.

3. Although there are many different cultural and legal approaches used in corporate governance worldwide, there is a growing consensus on what constitutes good corporate governance. List and explain at least three standardized common principles of good corporate governance.
The quality and credibility of all internal corporate practices on good governance still subject to the quality of a country’s corporate law, its protection of both creditor and investor rights (including minority shareholders), and the country’s ability to provide adequate and appropriate enforcement.
• A board of directors should have both internal and external members, more importantly it should be staffed by individuals of true experience and knowledge of not only their own rules and responsibilities, but of the nature and conduct of the corporate business.
• A management compensation system should be aligned with corporate performance example financial and otherwise. Have significant oversight from the board and open disclosure to shareholders and
…show more content…
The most important is currency liquidity. Popular currency pairs are traded with lowest spreads while rare pairs raise dozen pips spread. Next factor is amount of a deal. Middle size spot deals are executed on quotations with standard tight spreads.
Extreme deals, both too small and too big are quoted with broader spreads due to risks involved. On volatile market bid-offer spreads are wider than during quiet market conditions. Status of a customer also impact spread as large scale traders or premium clients enjoy personal discounts. Nowadays Forex market characterizes high competition and as brokers are trying to stay closer to customers, spreads tends to be fixed on lowest possible level. Each trader should pay sufficient attention to spread management. Maximum performance can only be achieved when maximum quantity of market conditions is taken into account. Successful trading strategy is based on effective evaluation of market indicators and specific financial conditions of a deal. The best tools here are complex analysis, forecasting, risk/return analysis, transaction cost evaluation. Because spreads are subject to change, spread management strategy should also be flexible enough to adjust to market
Open Document