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Description
Flashcards by Kyle Olson, updated more than 1 year ago
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Created by Kyle Olson
over 7 years ago
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| Question | Answer |
| The goal of management | Maximize shareholders' wealth |
| What is a MNC? | A Multi-national Corporation (a firm that engages in some form of international business) |
| Common finance decisions for a MNC | -discontinue business in a particular country -pursue new business in a country -expand business in a country -how to finance expansion |
| What is the agency problem? | The conflict of goals between a firm's managers and shareholders |
| Finance decisions are influenced by what other areas? | -Marketing -Management -Accounting and IS |
| What is agency cost? | The cost of making sure that managers are maximizing shareholder wealth |
| Why is the cost higher for MNC over domestic? | -Monitoring overseas is costly -Different cultures presents conflict -Size of the MNC |
| How can a parent company control agency problems? | Clearly communicating goals to each subsidiary |
| Corporate control of agency problem? | All management of MNC must be focused on maximizing shareholder wealth |
| Sarbanes-Oxley Act (SOX) | Provides more transparent reporting process for managers about productivity and financial conditions of their firm |
| SOX improvements | -establishing centralized database of info -ensuring consistent data reporting -system checking for discrepancies -executives more responsible for financial statements |
| Centralized Management Structure | Managers of parent control foreign subsidiaries |
| Decentralized Management Structure | More control to subsidiary managers |
| Impact of the internet? | Easier for parent to monitor foreign subsidiaries |
| Theory of competitive advantage | Specialization increases production efficiency |
| Imperfect markets theory | Factors of production are somewhat immobile providing incentive to seek out foreign opportunities |
| Product cycle theory | As a firm matures it recognizes opportunities outside its domestic market |
| Reasons for international trade | -Penetrate markets (exporting) -Obtain lower cost supplies (importing) -minimal risk -facilitated by the internet |
| Licensing | -Obligates a firm to provide its technology in return for fees or other benefits -Allows firms to use their technology in foreign countries without major investment and transport costs -Major drawback: quality control |
| Franchising | -Obligates a firm to provide strategy, assistance and possibly investment in exchange for a fee -Allows foreign market penetration without major capital investment |
| Joint Ventures | -A venture jointly owned and operated by two or more firms. One typically already being in that market -Allows both firms to provide cooperative advantage to a project |
| Acquisition of existing operations | -Allows firm to have full control over their foreign business and quickly obtain market share -Risk of large losses due to large capital investment -Liquidation may be difficult depending on performance |
| Establishing new subsidiaries | -Establishes new operations in foreign country -Requires large capital investment -Allows ops. to be tailored -Longer time period between purchase (outflow) and sales (inflow) |
| Direct Foreign Investment (DFI) | Any method of increasing international business that requires a direct investment in foreign operations (trade and licensing are NOT DFI) |
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