Intl Finance Ch 1

Front 1

What is the goal of an MNC?

Back 1

To maximize shareholder wealth

Front 2

What is the agency problem?

Back 2

the conflict of goals between a firms management and shareholders.

Front 3

Agency Costs

Back 3

the cost of ensuring managers maximize shareholder value

Front 4

Parent Control of Agency Problem

Back 4

- make goal of each subsidiary clear
- create compensation plans to reward managers who accomplish goals.
- Stock Options

Front 5

Corporate Control of Agency Problem

Back 5

- Takeover
- large shareholder demand management changes

Front 6

2 Management Styles

Back 6

1. Centralized
2. Descentralized

Front 7

Advantages and Disadvantages of Centralized Management

Back 7

Adv: assures managers do not make decisions that help themselves but not shareholders
Disadv: parent companies do not have info that subsidiary manager has.

Front 8

Advantages and Disadvantages of Descentralized Management

Back 8

adv: gives more control to subsidiary managers
dis: higher agency costs

Front 9

3 theories that explain why firms pursue international business

Back 9

1. comparative advantage
2. imperfect markets
3. product cycle theory

Front 10

Common Methods to improve internal controls ( to comply with SOX)

Back 10

1. Establishing a centralized database of information
2. Ensuring that all data are reported consistently among subsidiaries
3. Implementing a system that automatically checks data for unusual discrepancies
4. Speeding the process by which all departments and subsidiaries have access to data needed
5. Making executives more accountable for financial statements by personally verifying accuracy

Front 11

Comparative Advantage

Back 11

countries specialize because they are good at certain things.

Front 12

Imperfect Markets theory

Back 12

goods, raw materials, labor, etc are not easily transferable due to costs and restrictions.

Front 13

Product Cycle Theory

Back 13

1. Firm establishes itself at home.
2. Exports to meet foreign demand.
3. Creates subsidiary to establsih presence and reduce costs
4a. differentiates from competitors
4b. loses advantage and declines.

Front 14

6 ways in which firms engage in international business

Back 14

1. International Trade
2. liscensing
3. Franchising
4. Joint Ventures
5. Acquisitions of existing operations
6. Establishing new foreign subsidiaries

Front 15

International Trade

Back 15

exporting and importing. most simple and least risky form of international business

Front 16

Licensing

Back 16

company gives license for use of trademark. Usually includes technology and information. No cash investment. Somewhat risky because company reputation could be compromised.

Front 17

Franchising

Back 17

pay fees for advice, tech, equipment etc. Parent company pays some initial investment usually. Cash makes more risky.

Front 18

joint Venture

Back 18

Jointly owned and operated by two or more firms. Allows for access into new markets. Very costly.

Front 19

Acquisition

Back 19

Very Risky

Front 20

Establish new Subsidiary

Back 20

May be cheaper than acquisition in the long run.

Front 21

Valuation Model of an MNC

Back 21

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