UBACC5936 – FINANCIAL MANAGEMENT
Semester 3 2013

ASSIGNMENT (25 Marks)

(Due Date: 4.00pm Friday, Week 10)

All three (3) of the questions in this assignment must be answered. The assignment should be completed by groups of three students. (In unavoidable situations, permission may be granted for a group of two students). Students are advised to concentrate on the following attributes to create a quality assignment:
• Content
• Introduction
• Structure
• Expression
• Presentation
• Conclusion and
• Reference List
Note:
• The above items are attributes of a good assignment – they are not sections.
• Work that fails to show adequate acknowledgement of sources will not receive a mark.
• Each question must have minimum of three academic references in the reference list and the referencing must follow good academic format. The link to the library website for more information is: http://www.ballarat.edu.au/library/assignment-and-research-help/referencing
•
• Penalty for late submissions: 10 percent of your earned marks will be deducted for each day after the due date, unless prior arrangements are made with the lecturer and are consistent with the School rules and practices.

Q1. 6 marks plus 1 mark for references (maximum limit of 500 words)
a) Define agency problem, explaining two types of agency costs. (3 marks)
b) Comment on the following quote:
“… agency problems do not mean that the corporate firm will not act in the best interest of shareholders, only that is costly to make it do so. However, agency problems can never be perfectly solved …” (3 marks)

Source: Ross, S. A., Westerfield, R. W. and Jaffe, J. F. (1990) Corporate Finance (2nd ed). Richard D. Irwin. Inc. USA (p.16).


Q2. 6 marks plus 1 mark for references (maximum limit of 500 words)
How important is good governance and ethics for a firm? Provide answers with examples and theoretical explanations.

Q3. 10 marks plus 1 mark for references (maximum limit of 500 words)

Critically examine the following quote:
“…the agency costs of [controlling minority shareholders] CMSs are increasing the larger the potential for private benefits extraction. This suggests that, in many countries around the world, the main agency problem is between CMSs and non-controlling shareholders rather than between managers and small, dispersed shareholders.” Cronqvist and Nilsson (2003), pp. 696.

In addition to the cited references, students are strongly urged to read reviewed journal articles including Jensen, M.C. and Meckling, W. H. (1976). Theory of the firm: managerial behaviour, agency cost and ownership structure. Journal of Financial Economics, 3 (4) pp. 305-360. Please note: understanding the notions in the articles is more important than an entanglement with the advance math in many of the articles.

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