1. Agency Problem & Control of the corporation
1.1. Agency problems & conflicts
1.1.1. Moral hazard
1.1.2. effort level
1.1.3. earning retention
1.1.4. Risk aversion
1.1.5. Time horizon
1.2. Control mechanism
1.2.1. agency cost
1.2.1.1. direct cost
1.2.1.1.1. cost of monitoring action & performance of managers
1.2.1.1.2. cost of implementing control devices
1.2.1.2. indirect cost
1.2.1.2.1. lost of opportunity borne by shareholders
1.2.2. Reducing the problem
1.2.2.1. Establish set of contract
1.2.2.1.1. between the principal & agents relationship
1.2.2.2. Managerial Reward Scheme
1.2.2.2.1. such as stock option plan & performance shares / bonuses that tied up to earnings
1.2.2.3. Board of directors
1.2.2.3.1. determine the number of BOD through voting
1.2.2.4. Annual report & audited accounts
1.2.2.5. Stable Dividend policy
1.2.2.5.1. to reduce free cash flow
1.2.2.6. Corporate control
1.2.2.6.1. threat of takeover = better management
1.2.2.7. Gearing ratio
1.2.2.7.1. impose management to take reasonable level of debt
1.2.2.8. Threat of firing
1.2.2.8.1. to those who not acting for the best interest of stockholders
1.3. Agency theory
1.3.1. Agency relationships occurs when one party (the principal) employs another party (the agents) to perform tasks on their behalf
1.3.2. The owner delegate the decision making authority to management thus there is a contact formed to ensure the manager act in the best interests of shareholder
2. Corporate finance
2.1. in what long-lived assets should the firm invest ?
2.2. how can the firm raise cash for required capital expenditure ?
2.3. how should short-term operating cash flows be managed?
3. function & objective
3.1. to maximise shareholders' wealth
3.1.1. Selecting value-creating projects
3.1.1.1. maximise sales & minimize cost
3.1.1.2. maximize profit & market share
3.1.1.3. Beat Competition
3.1.1.4. Maximise market share
3.1.1.5. earnings growth: EPS & DPS
3.1.1.6. Avoid financial distress & bankruptcy
3.1.1.7. corporate Governance
3.1.2. making smart investment & financing decisions
3.1.2.1. buy assets generate > cash than they cost
3.1.2.2. sell bond, stocks & other financial instruments raise > cash than they cost
4. stakeholder objectives & possible conflicts
4.1. Stakeholders objectives
4.1.1. Shareholders
4.1.1.1. Obtain suitable return from investments
4.1.2. Customers
4.1.2.1. satisfaction of customer need to achieve
4.1.3. suppliers
4.1.3.1. have influence over its actions
4.1.4. Directors & manager
4.1.4.1. carrers, income & personal wealth depends on the company they work for
4.1.5. Employees
4.1.5.1. salaries or wages
4.1.5.2. job security or career prospects
4.1.6. Fund providers
4.1.6.1. protect their investment
4.1.6.2. concern about the ability to meets the interest & principal repayment obligations
4.1.7. Government
4.1.7.1. as regulator comapany
4.1.7.2. source of taxation income
4.1.8. Society
4.1.8.1. concerns on issues such as ethics, human rights, protection of environment & avoiding pollution
4.2. Possible conflicts
4.2.1. such as
4.2.1.1. shareholders want higher profits VS Employees want higher wages
4.2.1.2. Customers want higher quality & lower prices VS managers & shareholders want higher profit
4.2.1.3. Local people want less disruption VS Manager wants 24- hour factory operations