Purpose
To assess your ability to analyze the conflicts of interest that can arise between owners and managers.

Action Items
Answer the following Concept Questions at the end of Chapter 1 in the textbook in a 2½ page paper.

Text book reference -Ross, S., Westerfield, R., Jaffe, J., and Jordan, B. (2014).Corporate finance: Core principles & applications. (4th ed.). Boston: McGraw-Hill. ISBN: 9781121722385.

Question 1 AGENCY PROBLEMS:

Suppose you own stock in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 per share to acquire all outstanding stock. Your company's management immediately begins fighting off this hostile bid. Is management acting in the shareholders' best interest? Why or why not?

Question 2 AGENCY PROBLEMS AND CORPORATE OWNERSHIP:

Corporate ownership varies around the world. Historically, individuals have owned the majority of shares in the public corporations in the United States. In Germany and Japan, however, banks, other large financial institutions, and other companies own most of the stock in public corporations.

Do you think agency problems are likely to be more or less severe in Germany and Japan than in the United States? Why? In recent years, large financial institutions such as mutual funds and pension funds have been becoming the dominant owners of stock in the United States, and these institutions are becoming more active in corporate affairs.

What are the implications of this trend for agency problems and corporate control?