Corporate Finance: Instructor\'s Manual Applied Corporate Finance

(Amelia) #1
Aswath Damodaran 10

I. Stockholder Interests vs. Management Interests


! In theory: The stockholders have significant control over management. The
mechanisms for disciplining management are the annual meeting and the
board of directors.
! In Practice: Neither mechanism is as effective in disciplining management
as theory posits.

In theory, stockholders are supposed to come to the annual meeting, and make


informed judgments about whether they want to keep incumbent management in


place. The board of directors is supposed to protect the stockholders.

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