Essay About Independent Companies And Main Company

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Thus, if they are left alone, they will not act in the best interests of shareholders. In fact, the concentration of controlling rights in the hands of

managers means that managers have both the power and the incentive to
expropriate the wealth of shareholders. They can do this in various ways.
Managers can simply leave with the money; or they can engage in ‘transfer
pricing’, where they set up independent companies and sell the goods from
the main company to the independent companies at low prices; or they can
sell the assets of the company to relatives at cheap prices. In most countries,
the law protects investors against such abuses, and expropriation is likely to
take different forms. The most common one is managers’ consumption of
perquisites (‘perks’) such as jet planes, big offices, excessive pay, more
leisure, etc.… Other forms include ‘empire-building’ and expanding the
firm beyond what is rationally feasible. Many observers consider that such
expansions increase managerial benefits at the expense of shareholders.
Another channel through which managers can expropriate shareholders’
wealth is by the management team remaining in their jobs even when their
services are no longer needed and/or when they are performing poorly. In
fact, some economists consider that the resistance of managers to takeovers
aimed at their removal represents the most significant form of expropriation
of wealth from shareholders.Thus, if they are