WPC 480 Final – Gomez Questions With
Complete Solutions
takeover a special type of acquisition where the target firm does not solicit the acquiring
firm's bid; thus, takeovers are unfriendly acquisitions
(Hostile)
•AOL and Time Warner
•Bayer and Monsanto (2018)
Reversing Acquisitions: Restructuring a strategy through which a firm changes its set of
businesses or its financial structure
-Failure of an acquisition strategy often precedes a restructuring strategy
-Restructuring may also occur because of changes in the external environment
•Downscoping, Downsizing, Leveraged buy-out
International Strategy a strategy through which the firm sells its goods or services outside
its domestic market
, WPC 480 Final – Gomez Questions With
Complete Solutions
multidomestic strategy an international strategy in which strategic and operating decisions
are decentralized to the strategic business units in individual countries or regions for allowing
each unit the opportunity to tailor products to the local market
global strategy an international strategy in which a firm's home office determines the
strategies that business units are to use in each country or region
transnational strategy an international strategy through which the firm seeks to achieve
both global efficiency and local responsiveness
greenfield venture an entry mode through which a firm invests directly in another country
or market by establishing a new wholly owned subsidiary
international diversification strategy a strategy through which a firm expands the sales of
its goods or services across the borders of global regions and countries into a potentially large
number of geographic locations or markets
, WPC 480 Final – Gomez Questions With
Complete Solutions
Corporate Governance the set of mechanisms used to manage the relationships among
stakeholders and to determine and control the strategic direction and performance of
organizations
-Concerned with identifying ways to ensure that strategic decisions are made more effectively
-"how firms should be run"
agency relationship exists when one party delegates decision-making responsibility to a
second party for compensation
Managerial Opportunism the seeking of self-interest with guile (i.e., cunning or deceit)
Prevents the maximization of shareholder wealth (the primary goal of owner/principals) and
leads to:
Agency Costs
- Financial losses from self-interested decision making plus the costs of incentivizing and
monitoring managers
, WPC 480 Final – Gomez Questions With
Complete Solutions
How to limit agency costs?
-Monitor managers (making sure they do what owners want)
Owners and board of directors
-Incentivize them
-Market for corporate control
Agency costs the sum of incentive costs, monitoring costs, enforcement costs, and
individual financial losses incurred by principals because governance mechanisms cannot
guarantee total compliance by the agent
Ownership Concentration defined by the number of large-block shareholders and the total
percentage of the firm's shares they own
Large-block shareholders typically own at least 5 percent of a company's issued shares
Complete Solutions
takeover a special type of acquisition where the target firm does not solicit the acquiring
firm's bid; thus, takeovers are unfriendly acquisitions
(Hostile)
•AOL and Time Warner
•Bayer and Monsanto (2018)
Reversing Acquisitions: Restructuring a strategy through which a firm changes its set of
businesses or its financial structure
-Failure of an acquisition strategy often precedes a restructuring strategy
-Restructuring may also occur because of changes in the external environment
•Downscoping, Downsizing, Leveraged buy-out
International Strategy a strategy through which the firm sells its goods or services outside
its domestic market
, WPC 480 Final – Gomez Questions With
Complete Solutions
multidomestic strategy an international strategy in which strategic and operating decisions
are decentralized to the strategic business units in individual countries or regions for allowing
each unit the opportunity to tailor products to the local market
global strategy an international strategy in which a firm's home office determines the
strategies that business units are to use in each country or region
transnational strategy an international strategy through which the firm seeks to achieve
both global efficiency and local responsiveness
greenfield venture an entry mode through which a firm invests directly in another country
or market by establishing a new wholly owned subsidiary
international diversification strategy a strategy through which a firm expands the sales of
its goods or services across the borders of global regions and countries into a potentially large
number of geographic locations or markets
, WPC 480 Final – Gomez Questions With
Complete Solutions
Corporate Governance the set of mechanisms used to manage the relationships among
stakeholders and to determine and control the strategic direction and performance of
organizations
-Concerned with identifying ways to ensure that strategic decisions are made more effectively
-"how firms should be run"
agency relationship exists when one party delegates decision-making responsibility to a
second party for compensation
Managerial Opportunism the seeking of self-interest with guile (i.e., cunning or deceit)
Prevents the maximization of shareholder wealth (the primary goal of owner/principals) and
leads to:
Agency Costs
- Financial losses from self-interested decision making plus the costs of incentivizing and
monitoring managers
, WPC 480 Final – Gomez Questions With
Complete Solutions
How to limit agency costs?
-Monitor managers (making sure they do what owners want)
Owners and board of directors
-Incentivize them
-Market for corporate control
Agency costs the sum of incentive costs, monitoring costs, enforcement costs, and
individual financial losses incurred by principals because governance mechanisms cannot
guarantee total compliance by the agent
Ownership Concentration defined by the number of large-block shareholders and the total
percentage of the firm's shares they own
Large-block shareholders typically own at least 5 percent of a company's issued shares
