Business Management

The roles of the non-executive directors of a listed company

The board of directors of a listed public company will usually consist of executive directors, who hold specific responsibilities within the business (for example personnel director), and non-executive directors, who do not have specific responsibilities. Non-executive directors are usually employed on a part-time basis and are not involved in day-to-day operational matters. Nevertheless, executive and Read More…

Business Management

How a stock market-listed company maximizes shareholders’ wealth

There are large multinational companies listed on various stock markets in the world. These companies focus on maximizing shareholders’ wealth as the major goal. This single goal may not be appropriate or be subject to arguments if one considers the following, for example: a. Cash flow generation b. Profitability as measured by profits after tax Read More…

Business Management

Types of policy decision for determining the financial objectives of a company

The three types of policy decision for determining the financial objectives of a company are investment policy, financing policy and dividend policy. Investment policy Investment policy is concerned with the types of capital investment that a company makes in order to develop its business (such as replacement of non-current assets, new investment projects concerned with Read More…

Business Management

Functions of the treasury and financial control department

The treasury department raises and manages company funds and liquid assets while the financial control department is responsible for financial control over receipts and payments, accounting for all financial transactions and regular reporting on the company’s financial position. The treasury department will usually be responsible for: • Strategic financial planning, as an input into the Read More…

Business Management

Executive share option plans and the company’s goal congruency

The relationship between management and shareholders is sometimes referred to as an agency relationship, in which managers act as agents for the shareholders, using delegated powers to run the affairs of the company in the shareholders’ best interests. There is a potential conflict of interest that is inherent in this situation, since shareholders will be Read More…

Business Management

Can conflict of interest exist between shareholders and bondholders?

Bondholders are concerned that payments of interest and repayments of principal are made on time and without problems. The willingness of bondholders to provide funds to companies depends upon the risks and returns that they face, including the companies, expected cash flows, assets, (including security on assets), and credit ratings shareholders, in theory, seek to Read More…

Business Management

Bond covenants

There will often also be a ‘bonding covenant’ that describes the mechanisms by which the above covenants are to be monitored and enforced. This often includes an independent audit and the appointment of a trustee representing the interests of the bondholders. These are some examples of bond covenants: a. Asset covenant: This would govern the Read More…

Business Management

Agency relationships and conflict of interest in companies

Agency relationships exist when one or more persons, the principal(s), hire another person, the agent, to perform some task on his (or their) behalf fie principal will delegate some decision-making authority to the agent. The problems of agency relationships occur when there is a conflict of interest between the principal(s) and the agent. Within the Read More…

Business Management

Is maximizing the wealth of shareholders the objective of a company?

There is little agreement as to what objectives of companies are, or even what they ought to be. However, most corporate finance experts make the assumption that the objective of a limited liability company is to maximize the wealth of its shareholders. The assumption is normally justified in terms of classical economic theory. In market Read More…

Business Management

Conflict of interest and value maximization in companies

Maximizing value means that the management will seek the best possible outcome from a given set of circumstances, rather than settling for a merely satisfactory outcome. This statement therefore carries with it assumptions about the company’s attitude to risk in making business and financial decisions. If it is perceived that unacceptably risk projects are being Read More…