Different risk-profile - shareholders and management, Finance Basics

Different Risk-profile - Shareholders and Management

Shareholders will generally prefer high-risk-high return investments while they are diversified that is they have many investments and the collapse of one firm may have irrelevant effects upon their overall wealth.

Managers on the other hand, will prefer low risk-low return investment because they have a personal fear of losing their jobs whether the projects collapse. Like human capital is not diversifiable.  This dissimilarity in risk profile is a cause of conflict of interest while shareholders will forego some profits whenever low-return projects are undertaken.

Posted Date: 1/29/2013 1:26:26 AM | Location : United States







Related Discussions:- Different risk-profile - shareholders and management, Assignment Help, Ask Question on Different risk-profile - shareholders and management, Get Answer, Expert's Help, Different risk-profile - shareholders and management Discussions

Write discussion on Different risk-profile - shareholders and management
Your posts are moderated
Related Questions
The Mountain Fresh Company had earnings per share (EPS) of $6.32 in 2006 and $11.48 in 2011. The company pays out 30 percent of its earnings as dividends per share (DPS), and the

Accept or Reject Rule of NPV Under this method, a company should accept an investment venture if N.P.V. is positive that is if present value of cash outflows exceeds such of c

when will I receive my order and how will I receive it?

Types of Partners 1. General Partners -Unlimited active and liability in participation in partnership activities. 2. Limited partners - Limited liability in the management of


Constant DPS plus Extra or Surplus 1. Beneath this policy a constant DPS is paid every year. Nonetheless extra dividends are paid in years of supernormal earnings. 2. It prov

What is the Process of Investing in Securities ? There are several process of investing in securities:- (1) Finding a Broker (2) Selection of Brokers (3) Opening an Account w

Functions of Central Bank a) Ensure Economic stability b) Lender to the government c) Printing of currency notes d) Banker to the government e) Lender of last reso

Interpolation method Consequently, r denotes required rate of return Consequently, r = 14 percent + (15 percent - 14 percent) x 253 .646 /253 .646 + 5.375

Internal finance can avoid the agency costs of debt and equity finance. In practice it is the most important source of funding.   (a)  Discuss potential problems of internal finan