Question

Smith Jones Inc.'s stockholders are mostly individual investors, and there is relatively little institutional ownership. If several pension and mutual funds were to take large positions in Smith Jones Inc.'s stock, direct shareholder intervention would be likely to motivate the firm's management. Suppose new law made it more difficult to stage a hostile takeover. Which of the following groups would benefit the most? a. Small individual investors b. Management c. Bondholders

Answer 1

Answer:

Small individual investors will benefit the most.

Explanation:

From the case given, it can be established that small individual investors represent the bulk of shareholders or business owners.

Also, from Smith Jones stock, we see that Pension and Mutual Fund constitute a bulk in the share position, and the direct intervention of shareholders motivate the management.

From the foregoing analysis, the shareholders holders have thus seek to incorporate corporate governance in the organization as a tool to reduce the agency problem between business owners and management. By this, management objectives and the shareholders could be aligned. The business owners singular objective is the profit maximization of their wealth, while the management is interested in their job security, status, mutual funds, pension and all. Since this objective of management has been duly taken care of by the shareholders, it is believer that this will boost the management morale and ultimately improve their performance. The result is thus increase in organisational performance with resultant growth in profit, share price and returns from the business. These are benefits to the individual investors.