week 5 corporation ownership faisal alsager mgt 427 - corporate governance
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Week 5
Corporation OwnershipFaisal AlSager
MGT 427 - Corporate Governance
Objectives
✤ To understand the properties of fractionated ownership
✤ To have a background about the effects of takeovers on corporate governance
Fractionated Ownership
✤ Ownership in the modern corporation differs from traditional notion of ownership:
✤ Numerical: number of owners
✤ Legal: legal title holder (trustee) and beneficial owners (beneficiaries)
✤ Functional: different responsibilities
✤ Personal: separate personality
✤ The concepts of governance discount and governance premium
Why do we need corporate governance?
✤ Because of the rise of many issues:
✤ takeovers
✤ junk bonds
✤ growth of institutional investors
Transferability?
✤ Shareholders should sell to each other
✤ This makes the market efficient
✤ In Takeovers: one group of transfers power to another
Two-Tier Tender Offer
✤ A buyer offers premium per share over the market price to everyone who tendered until 51 percent is received
✤ The last 49 percent will be left asking for more
✤ They may get notes for the tender not payable for 15 years
Corporate Democracy
✤ Shareholders are seen as voters, board of directors as elected representatives, proxy solicitation as election campaigns, corporate charters and bylaws as constitutions and amendments
✤ They legitimate the growth of power in the hands of private individuals
To Sell or Not to Sell
✤ The problem of “collective choice”: What should I do? What are others going to do?
✤ “Should I sell or not?”
References
✤ Corporate Governance (4th Edition): Monks, R. and Minow, N. 2004. (Publisher: Wiley-Blackwell)
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