Different risk-profile - shareholders and management, Finance Basics

Assignment Help:

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.


Related Discussions:- Different risk-profile - shareholders and management

Stewardship accounting, Stewardship Accounting Shareholders contribute...

Stewardship Accounting Shareholders contribute capital that is provided to the directors that they employ and at the end of each accounting year render an explanation on the a

Sources of funds - finance, Sources of Funds - Finance Venture capital...

Sources of Funds - Finance Venture capital, with combining risk financing along with marketing assistance and management, could become an effective instrument in fostering dev

Necessity of risk adjusted hurdle rates for companies, Discuss the necessit...

Discuss the necessity of risk adjusted hurdle rates for companies with diverse lines of business. Every company invests in new projects based on the expectation of earnings

Calculate the current ratio, For each of the financial statement ratios lis...

For each of the financial statement ratios listed below calculate the ratio for the current year and for the prior year. (Note that in most textbooks, some of the ratios call for a

OPTION, DEFINE THE TERM OPTION IN DETAIL?

DEFINE THE TERM OPTION IN DETAIL?

Fiscal federalism, What are the principles of multiunit finance?

What are the principles of multiunit finance?

Example of asset based valuation, Example of Asset Based Valuation Ext...

Example of Asset Based Valuation Extracted information from the books of Kent Limited.   Current liabilities Bank overdraft    Sh. 300,000

Maturity on the bond, You buy a SML Bond for $980.  The bond has a face val...

You buy a SML Bond for $980.  The bond has a face value of $1000 and an yearly  coupon rate of 8%.  There are five years left until maturity. a. What is the yield to maturity on

Government budget deficit, Government Budget Deficit If the Government...

Government Budget Deficit If the Government spends much more than it gets in from tax revenue, it runs a budget deficit. This deficit should be covered or financed either via

Costs of capital, a bond that has a 1000 per value and a contract or coupon...

a bond that has a 1000 per value and a contract or coupon interest rate of 12.8%. The bond is selling for a price of $1125 and will mature in 10 years. The firm''s tax rate is 34%

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd