Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Textbook Question
Chapter 20, Problem 11DQ
Why do management and stockholders often have divergent viewpoints about the desirability of a takeover? (LO20-5)
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Students have asked these similar questions
Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior?
Many firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders' interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?
It is an axiom that may be characterized by managers making decisions that conflict with the best interest of the shareholders.
a. the risk-return trade-off
b. the agency problems
c. the curse of competitive markets
d. stockholders versus managers
Chapter 20 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
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- MNCs generally do not need to hedge because shareholders can hedge their own risk. Group of answer choices True Falsearrow_forward1.Why the limitation of portfilio analysis is it naively following the prescriptions of a portfolio model may actually reduce corporate profits if they are used inappropriately?arrow_forwardWhich of the following statements is false? Group of answer choices a.If management does not consider the needs of the bondholders of a firm, they could end up destroying shareholder value b.If management chooses to ignore the needs of bondholders when structuring a firm, the firm can be expected to have to pay a higher interest rate on its debt c.In a perfect capital market, if a firmʹs current capital structure is not optimal, one can expect that firm to be a takeover target d.Management should focus only on the needs of a firmʹs shareholders since they are the true owners of the firm and, as such, they elect the firmʹs directorsarrow_forward
- In your opinion, what is the most important reason for a forward stock split?arrow_forwardSuppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?arrow_forwardWhich of the following statements is CORRECT? One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the capital structure. The threat of takeover generally increases potential conflicts between stockholders and managers. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. The threat of takeovers tends to reduce potential conflicts between stockholders and managers. The creation of the Securities and Exchange Commission (SEC) eliminated conflicts between managers and stockholders.arrow_forward
- In your opinion, what is the most compelling justification for a forward stock split?arrow_forwardWhich of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders? a. Compensating managers with stock options. b. Abolishing the Security and Exchange Commission. c. The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. d. Financing risky projects with additional debt. e. The threat of hostile takeovers.arrow_forwardAre managers of firms with formidable takeover defenses more or less likely to act in the shareholders’ interest rather than their own?arrow_forward
- Which of the following statements is FALSE? When a buyer seeks to buy a stock, the willingness of other parties to sell the same stock suggests that they value the stock differently. O When private information is relegated to the hands of a relatively small number of investors, these investors may be able to profit by trading on their information. Since stock markets aggregate the information and views of many different investors, we expect the stock price to react quickly to new publicly available information as the investors continue to trade until a consensus is reached as to the new value of the stock. If the profit opportunities from having private expertise are large, other individuals will attempt to gain the expertise and devote at least as large amount of resources needed to acquire it.arrow_forwardWhy is it reasonable to ignore diversifiable risk and care only about nondiversififiable risk? What about an investor who puts all of his money into only a single risky stock? Can he properly ignore diversififiable risk?arrow_forwardWhy is a dissenting stockholder who demands payment of his shares no longer allowed to withdraw from his decision?arrow_forward
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