Shareholder Wealth Maximization Model Case Study

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

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

Exchange where stock brokers and traders can buy and or sell stocks also called shares, bonds, and other securities. Stock exchanges may also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as continuous auction markets, with buyers and sellers consummating transactions at a central location, such as the floor of the