20 terms

Ward -- Chapter 10

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Terms in this set (...)

Corporate Governance
The set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations.
Agency Relationship
Exists when one party delegates decision-making responsibility to a second party for compensation.
Managerial Opportunism
The seeking of self-interest with guile -- cunning or deceit.
Agency Costs
The sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals because governance mechanisms cannot guarantee total compliance by the agent.
Ownership Concentration
Defined by the number of large-block shareholders and the total percentage of the firm's shares they own.
Large-block Shareholders
Typically own at least 5 percent of a company's issued shares.
Institutional Owners
Financial institutions such as mutual funds and pension funds that control large-block shareholder positions.
Board of Directors
A group of elected individuals whose primary responsibility is to act in the owners' best interests by formally monitoring and controlling the firm's top-level managers.
Executive Compensation
A governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentives such as stock awards and options.
Market for Corporate Control
An external governance mechanism that is active when a firm's internal governance mechanisms fail.
Managerial Employment Risk
Risk of job loss, loss of compensation, or loss of managerial reputation.
Free Cash Flows
Resources that are generated after investment in all internal projects that have positive net present values within the firm's current product lines.
Curve S
Represents the business or investment risk profile for shareholders.
Curve M
Represents the managerial employment risk profile.
Diffuse Ownership
A large number of shareholders with small holdings and few/no large-block shareholders.
Golden Parachute
Type of managerial protection that pays a guaranteed salary for a specified period of time in the event of a takeover and the loss of one's job.
Golden Goodbye
Provides automatic payments to top executives if their contracts are not renewed, regardless of the reason for nonrenewal.
Insiders
Represented by the firm's CEO and other top-level managers.
Related Outsiders
Individuals who are not involved in the firm's day-to-day operations, but may have a relationship with the company.
Outsiders
Individuals who are independent of the firm.