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Firms must provide the right incentives if they are to get - Select - to focus on long - run value maximization. Conflicts exist between
Firms must provide the right incentives if they are to get
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to focus on longrun value maximization. Conflicts exist between managers and stockholders and between stockholders represented by managers and
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Managers' personal goals may compete with shareholder wealth maximization. However, managers can be motivated to act in their stockholders' best interests through reasonable
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packages, firing managers, and the threat of hostile takeovers. If a firm's stock is undervalued, corporate raiders will see it as a bargain and will attempt to capture the firm in a hostile takeover.
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generally receive fixed payments regardless of how the firm does, while
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earn higher returns when the firm's earnings are higher. Investments in
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ventures, that have great payoffs to stockholders if successful but threaten bankruptcy if they fail, create conflicts. In addition, the use of additional
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increases stockholder debtholder conflicts. Consequently, bondholders attempt to protect themselves by including
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in bond agreements that limit firms' use of additional
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and constrain
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actions.
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