To critically think about: The act of the management is in the interest of the shareholders. Introduction: The managers of the firm act in the interest of the shareholders based on two factors. The goals of the management are aligned to goals of the shareholders, which is the first factor. The replacement of the managers for not pursuing stockholders goals is the second factor. Situation: Person X owns stock in a company. The present share price is $25. There is an announcement made by another company stating that it needs to purchase Person X’s company. It also says that it will pay $35 per share to obtain all the outstanding stocks. Person X’s management starts fighting off for the hostile bid.

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Chapter 1, Problem 1.12CTCR

Summary Introduction

To critically think about: The act of the management is in the interest of the shareholders.

Introduction:

The managers of the firm act in the interest of the shareholders based on two factors. The goals of the management are aligned to goals of the shareholders, which is the first factor. The replacement of the managers for not pursuing stockholders goals is the second factor.

Situation:

Person X owns stock in a company. The present share price is $25. There is an announcement made by another company stating that it needs to purchase Person X’s company. It also says that it will pay $35 per share to obtain all the outstanding stocks. Person X’s management starts fighting off for the hostile bid.

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