Chapter 11 Flashcards
concentrated ownership and control
ownership and control rights concentrated in the hands of owners
corporate governance
the relationship among various participants in determining the direction and performance of corporations
diffused ownership
an ownership pattern involving numerous small shareholders, none of whom has a dominant level of control
separation of ownership and control
the dispersal of ownership among many small shareholders, with control of the firm, largely concentrated in the hands of salaried, professional managers who own little or no equity
institutional investors
professionally managed mutual fund or pension pool
socioemotional wealth (SEW)
the stock of affect-related value that the family has invested in the family firm
agency relationship
the relationship between principals and agents
principal
person (such as the owner) who delegates
agent
person (such as a manager) to whom authority is delegated
agency theory
the theory about principal-agent relationships (or agency relationships in short)
Principal-agent conflict
Conflict of interests between principals (such as stakeholders) and agents (such as professional managers)
agency cost
the cost associated with principal-agent relationships. they are the sum of (1) the principals’ costs of monitoring and controlling agents and (2) the agents’ costs of bonding
information asymmetry
asymmetric distribution of information between two sides
principal-principal conflict
Conflict of interests between two classes of principals: controlling shareholders and minority shareholders
expropriation
activities that enrich the controlling shareholders at the expense of minority shareholders
tunneling
activities of managers from the controlling family of a corporation to divert resources from the firm for personal or family use
related transaction
Controlling owners sell firm assets to another firm they own at below-market prices or spin off the most profitable part of a public firm and merge it with another of their private firms
inside director
a director serving on a corporate board who is also a full-time manager of the company
outside (independent) director
a nonmanagement member of the board
CEO duality
the CEO doubles as chair-man of the board
lead independent director
an independent director designated to be the leader of a board whose chair is the CEO
interlocking directorate (board interlock)
two or more firms share one director on their boards
