Question 1:
a) Describe the forces driving cross-border mergers which operate more strongly than the reasons for transactions which take place in a given country’s border.
b) What are the two theoretical reasons why divestitures might create wealth?
Question 2:
a) Explain the trade-off which defines the static theory of the capital structure.
b) Describe the pecking-order theory of capital structure and describe the implications related with it which are at odds with the trade-off theory.
Question 3: The separation of ownership and control of a corporate firm has given increase to what is called ‘a positive and normative divide’ in describing managerial behavior. For illustration, in the case of corporate restructuring, it is believed that whilst decisions are taken to maximize the shareholder’s well-being, there is loss caused to workers, community and society. Therefore there is a presumption that maximizing the well-being of shareholders and maximizing social responsibility are two conflicting goals.
Required:
Support your answer to the given questions with suitable arguments, school of thoughts and evidence:
a) Do managers really look after the interest of shareholders?
b) Should managers look after the interests of shareholders? How would you reconcile the apparent conflict in the above statement?
c) Ethics is good for business; it creates shareholders’ wealth”. Explain this statement and give a relevant illustration to support your answer.