Management control of companies means that shareholders interests will not be pursued Watch

tehforum
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Roving Fish
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Ifailedumad
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this is why companies issues shares to the management, to bring them the incentive. Shareholders might only want profits while management may not be in a position to do so for reasons I forget, anyway outdated economic theory says a firms only aim is profits, but there may be other aims as outlined in my economics notes. In my words:

"Apart from maximising profit, a firm can have many other objectives. In understanding these
objectives we have to remember the stakeholders that exist in a firm. These are the owners, the
managers, the workforce, and the consumer. Economic theory states that the firm will seek to
maximise profit, but behavioural economics states there can be many other aims. The dominant
group out of the four stakeholders will influence the firms objectives.

Sales revenue maximisation: This is achieved by selling at the point where marginal revenue is 0. The
firm produces above the profit maximising quantity till marginal revenue is 0. At this point total
revenue is 0. To do this, the firm would have to accept a lower price. The reason for doing so could
be to increase the market share of the firm. There could still be abnormal profit if revenue is greater
than total costs. Another reason for doing so could be the fact that managers salaries are linked to
the value of sales, so managers have an interest to maximise sales revenue. But shareholders would
want profit, this conflict is overcome by offering management shares in the company

Sales maximisation: A firm would do this by increasing total output to the break even point where
total revenue equals total costs. A firm in the private sector would not go beyoned the break even
point unless it can use cross subsidisation to cover its losses from from this activity.

Satisficing profits: letting go of profits to achieve some other aim."

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tehforum
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(Original post by Ifailedumad)
this is why companies issues shares to the management, to bring them the incentive. Shareholders might only want profits while management may not be in a position to do so for reasons I forget, anyway outdated economic theory says a firms only aim is profits, but there may be other aims as outlined in my economics notes. In my words:

"Apart from maximising profit, a firm can have many other objectives. In understanding these
objectives we have to remember the stakeholders that exist in a firm. These are the owners, the
managers, the workforce, and the consumer. Economic theory states that the firm will seek to
maximise profit, but behavioural economics states there can be many other aims. The dominant
group out of the four stakeholders will influence the firms objectives.

Sales revenue maximisation: This is achieved by selling at the point where marginal revenue is 0. The
firm produces above the profit maximising quantity till marginal revenue is 0. At this point total
revenue is 0. To do this, the firm would have to accept a lower price. The reason for doing so could
be to increase the market share of the firm. There could still be abnormal profit if revenue is greater
than total costs. Another reason for doing so could be the fact that managers salaries are linked to
the value of sales, so managers have an interest to maximise sales revenue. But shareholders would
want profit, this conflict is overcome by offering management shares in the company

Sales maximisation: A firm would do this by increasing total output to the break even point where
total revenue equals total costs. A firm in the private sector would not go beyoned the break even
point unless it can use cross subsidisation to cover its losses from from this activity.

Satisficing profits: letting go of profits to achieve some other aim."

yeah boi
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yeah boi
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