Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

(Hop HipldF0AV) #1

investedinthefirm,maynotbegoodfortheotherinvestors
in the firm.


WhatMayCausetheLikelihoodofManagementChangingto
Shift?


Ifthere isoneconstant inmarkets, itischange.Managers
whowereviewedasimpervioustooutsidechallengecanfind
theirauthorityquestioned.Whataresomeofthefactorsthat
may cause this shift?



  • The first is that the rules governing corporate
    governancedochangeovertime,sometimesinfavor
    of incumbentmanagers and sometimes in favor of
    stockholders. In recent years, for instance, many
    emergingmarketeconomieshavemadeiteasierfor
    stockholdersincompaniestochallengemanagers.A
    similartrendcanbeseeninEurope,whereincumbent
    managersclearlyhadtheupperhanduntilafewyears
    ago. The impetus for this reform has come from
    institutionalinvestorswhohavegrowntiredofbeing
    ignored by managers when confronted with clear
    evidence of poor decisions.

  • Even when the rules allow investors to challenge
    management decisions, most investors take the
    passiverouteofvotingwiththeirfeet.Itisherethat
    thepresenceofactivistinvestorswhoarewillingto
    take large positions in companies and use these
    holdings as a platform to challenge and change
    management practices makes a difference. In the
    UnitedStates,theseinvestorsmadetheirpresencefelt
    in the 1980s.

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