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13 Cards in this Set
- Front
- Back
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What is an MNC and what is its goal?
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Aiming to maximize shareholder wealth, and MNC is multinational corporation that engages in some form of non-domestic trade.
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Describe the agency problem, and the problem that ensues for MNC's in relation to this
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The conflict of goals between a firm's manager and shareholders. The costs of ensuring management acts on the behalf of shareholders are often higher for MNC's.
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Why are agency costs higher for MNC's?
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-Monitoring managers overseas becomes more difficult -Cultural Differences -Size -The scope of short term decisions is downplayed, ultimately affecting the long term outlook. |
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Describe SOX
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The Sarbanes-Oxley act is legislature that more closely regulates reporting and internal control of the firm. |
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How does SOX affect the management of MNCs?
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SOX ensured more transparency in the reporting of financial status and productivity within the firm; helped spur the creation of centralized databases, increased executive accountability, and improved processes for internal auditing and control. |
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Name two options of management structures for an MNC. |
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Expand on the management structures within the MNC |
Decentralized- Completely different set of MGMT; agency cost may increase because of the need to keep MGMT incentivized to maximize shareholder wealth. |
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Why do firms pursue int'l business? |
1)Competitive Advantage: Some are just better at producing some things; allocation of resources and knowing company/country strengths 2)Imperfect Markets Theory: Encourages competitive pricing and capitalization of individual resources (synonymous with above) 3)Product Cycle Theory: Globalization is a sure sign of firm maturation. |
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How does Int'l FIN MGMT differ from pure?
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Int'l MGMT must consider exchange rate risk and political risk, as well as widespread imperfect markets. However, there is also access to an expanded opportunity sets and different resources.
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How do firms engage in int'l business? |
Licensing Franchising Joint Ventures Acquisitions of Existing Operations Establishing New Foreign Subsidiaries |
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Define Direct Foreign Investment.
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Any investment directly made by the firm into foreign operations |
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There is much uncertainty surrounding foreign cash flows. How does this impact potential investment?
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Due to the uncertainty, the rate of return must be higher (to account for the added risk) and the overall valuation of the MNC will be lower. |
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