Corporate Finance Flashcards
The mechanism of aligning the interests of shareholders and management, is known as…?
Corporate governance
What is the difference between shareholder theory and stakeholder theory?
Shareholder theory: Corporate governance is only in place to mitigate conflicts of interests between shareholders and management
Stakeholder theory: Corporate governance is also in place to mitigate the conflicts of interests of management and wider stakeholders
Who are the stakeholders of a business?
Shareholders, employees, suppliers, and customers, among others
What is the difference between a two-tier board and one-tier board structure?
In the traditional two-tier board structure, a separate board of supervisory directors “supervises” and oversees the board of managing directors and gives advice to the managing directors.
In a one-tier board structure, the executive directors and non-executive, supervising, directors are all members of one and the same board, i.e. they jointly form a single corporate body.
What is the principal agent conflict?
Principal-agent conflict: An agent’s interests may not coincide exactly with those of the principal
What happens at an AGM?
AGM: Management release audited FS, address company performance and answer shareholder questions
Recall and describe the four stakeholder management infrastructures?
- Legal
- Contractual
- Organisational
- Governmental
Who can attend an AGM?
Any shareholder can attend an AGM
What happens to a shareholders vote if he/she cannot attend?
If a shareholder cannot attend to vote they can give up their vote through proxy.
What is the difference between ordinary and special resolutions?
Ordinary resolutions require >50% e.g. approval of auditor and the election of directors
Special resolutions require >75% e.g. mergers, takeovers or amending company bylaws
Special meetings which occur on an ad hoc basis where special resolution votes are required ie takeovers / mergers and amendments to company bylaws are known as…?
Extraordinary general meetings
Are Directors are allowed to vote on transactions in which they have a material interest?
No
A board made up of different types of directors that are elected at different times of the year.
Staggered board
Are the board of directors involved in day to day management?
No
Who is cumulative voting most advantageous for?
Minority voters because they can use all of their votes for a single candidate
Who are activist shareholders?
Activist Shareholders: Activists take stakes in businesses and seek changes in management and objectives to increase their return by increasing shareholder value
A takeover not supported by management is called?
Hostile takeover
What are the risks of poor corporate governance?
Weak internal controls
Managers unmonitored may make generally poor investment decisions or choose lower than optimal risk
Legal and reputational risks
What are the issues with ESG investing?
A manager has a fiduciary responsibility to act in the best financial interests of the client, integrating ESG investments may conflict with this
What is the difference between negative and positive screening?
Negative screening: Excluding companies in a portfolio that do not comply ESG criteria.
Positive screening: Integrating companies in a portfolio that follow ESG practices
What is best in class investment?
Best-in-class investment: Investing in companies that are leaders in ESG criteria in their asset class
What is impact investing?
Impact investing: Investments “made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return”
What is thematic investing?
Thematic investing: Investment through Identify investments from wider macroeconomic trends
Detail the four steps of the capital budgeting process?
💡Idea Generation
🖥️Analysing project proposals
💲Create a firm wide capital budget
✅Monitor decisions and conduct a post-audit
