Domestic and International Banking Essay

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Questions 2 : (a) ‘Agency theory is relevant in explaining several corporate finance decisions ’ Critically evaluate the extent to which agency theory and related empirical evidence may be used to explain, capital structure and dividend decisions of listed companies. (b) Identify and critically evaluate the stated or implied objectives of the mergers and acquisitions of one FTSE100 company during the past decade within the context of the theoretical and strategic objectives for mergers and acquisitions. Using relevant company data and other publicly available information, assess the extent to which the objectives of such mergers and acquisitions have been achieved. Explain why the company achieved or failed to achieve some or all of its merger and acquisition objectives. (c) Analyse and evaluate the economic and accounting models of equity and firm valuation. CORPORATE FINANCE THEORIES: Corporate finance theories are based partly on the new book by Tirole: The Theory of Corporate Finance; and also on Dixit: The Art of Smooth Pasting; and Ziegler: A Game Theory Analysis of Options, and in addition on a number of academic Central to the theory of corporate governance is the separation of ownership and control: the individuals who own the corporation are not the same as those who have control. Much of corporate finance theory are based on problems that arise because of this separation: problems related to transparency, executive accountability, governance failures, but there are also benefits to be had: corporate ownership and restructuring can take place quickly and efficiently, and investors who may be considered \active" can quickly establish an influential stake in a corporation to exert pressure on the board and the management.

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