Smart and Simple Resources on Personal Finance, Small Business, Marketing, and Advertising. This module aims to introduce the more complex areas of financial management. It is designed to familiarise students with the major theoretical developments and practices in the areas of corporate finance and risk management. Students are encouraged to develop critical thinking when considering the advantages and disadvantages of diverse practices in the areas of corporate finance and risk management.
One way of dealing with shareholder-manager agency conflicts is that managers are compensated on the basis of changes of the value of the business. Since managers have great incentives to maximize shareholder wealth, the agency costs are low in this case. The other method of dealing with the problem is shareholders monitoring every managerial action. This method is extremely costly and inefficient. The most favourable solution lies between these two extremes where managers compensation is coupled with the performance while monitoring their actions. Large companies employ performance shares schemes where shares of the company are offered to managers on the basis of financial performance such as earnings per share, return on assets, return on equity, and share price. These compensation schemes are designed to ensure managers take actions that will enhance shareholder wealth and to facilitate companies attract and retain the best managers.