Corporate Finance

‘The history of corporate structure over the last one hundred and fifty years reflects that it fundamental purpose has been to maximize corporate profit with the view of increasing shareholder wealth.’ (http:www.band.edu.au/law/blr/vol10-2/5-carfield.pdf) However , ethical considerations may be compromised with such financial modeling.

‘The traditional view of the legal model of the company is a principal-agent model, the directors being the agents and the shareholders the principals. The shareholders, as sole owners and residual risk bearers, are entitled to assume that the company will be run in their interests exclusively’ (Grinyer, 1996)
The question of whether corporate management adopts strategies consistent with shareholder wealth maximisation is an ongoing issue in corporate finance. Agency problems may arise when management decisions or actions flow from non- value or trivial maximising strategies.

For example, management may seek to increase the size of the...