lecture 7 and 8

Question 1

there are two types of stakehodlers:

Answer 1

primary stakehodlers: those with a formal/contractual relationship

Secondary stakehodlers: those without a formal relationship. non contractual parties:

negative exernalities and (global) public goods

Cant protect themselves through contract

Question 1

Primary stakeholders

Answer 1

employees: will not consider firm specific investments wihtout protection from labour laws, like receiving a contract for a longer period, not being easily fired, etc.

They are contractual counterparties

Firm specific investments generat ehold up problems

Corporate law solution: emplyee-appointed directors (eu coutnreis) co determination (germany)

influence business policies

insurance to skilled worker s

informational role

Creditors: Debt: fixed claim, repay principal amount plus interest

at predefined point(s) in time

Vis-a-vis the corporation: contractual counterparties

Question 2

Agency problems: shareholder-creditor:

Answer 2

Ex ante (before contract; hidden information): Misrepresentation

ex post (after ctonract: hidden cation) take actions at expense of creditors

Question 3

Asset diversion/dilution

Answer 3

take out assets from teh corporate asset pool: capital protection rules

Question 4

Asset substitution:

Answer 4

leverage provides shareholders with an incentive to replace low risk assets with riskier ones

leads to overinvestment

Question 5

debt dilution

Answer 5

increase firms overall borrowing

Question 6

Debt overhang

Answer 6

leverage provides shareholders with an incentive to choose not to finance new positive nPV projects

Leads to underinvestment

Question 7

Capital protection rules: rules about

Answer 7

constituting the companys capital: minimum capital

increasing the companys capital: capital resolutions/board decisions

Maintaining the companys capital: distribution restrictions

Question 8

Deal rationale

Answer 8

acquisition price > standalone going concern value

Acquisition return > cost of capital

post acquisition value = pre-acquisition value + synergy gain

Question 9

there are two types of acquisitions

Answer 9

friendly takeover

Hostile takeover (tender offer, proxy fight)

Question 10

Merger: types

Answer 10

absorption: merging into another company

Triangular: merging into an acquisition vehicle