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Theories and Its Impact In Achieving Business Fundamental Objectives

University: University of Chester

  • Unit No: 9
  • Level: Post Graduate/University
  • Pages: 5 / Words 1285
  • Paper Type: Assignment
  • Course Code: FINM202
  • Downloads: 51
Question :

This assessment will cover the following questions:

  • Demonstrate the role of management and its significance in meeting stakeholder objective.
  • Discuss the financial corporate objectives and its role in effective decision making
Answer :

1. Clear discussion of role of the management in meeting shareholder objectives 

The fundamental objectives of organisations

The first objective of a large business organisation is to fulfil the shareholders' objectives. The business institutions have to evaluate the requirements of the shareholders and provide a satisfying service to them. Companies can maintain the following objectives for providing a better quality service to the shareholders.

i) Expanding the dividend of shareholders so high number of shareholders can be attracted to the company. According to Clark & Wójcik (2018), it is important that the shareholders can receive a favourable dividend on their share for maximising shareholders number. Shareholders if receive high dividend on their share then the company can expand their share capital in the market.

ii) The business organisations have to allow the shareholders for taking part in the business meetings. This can help the companies to introduce new and innovative business strategies. Additionally, it can help to achieve the shareholders' objectives.

iii) The business organisations can use the agency theories in their business for improving the investment, financing and dividend decisions. These decisions can help business organisations in achieving their objectives.

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Explanation of theories and its impact in achieving business fundamental objectives

The business organisations can apply numerous corporate finance theories that can help in achieving business fundamental objectives especially Agency theory. The description of the theories is given as the following.

Agency theory

 M. Jensen and W. Meckling have introduced Agency theory in the year 1976. This theory is underlying the research arguments that describe the relationship between the shareholder and the company managers. This theory has described that the managers and shareholders need to focus on a range of each other’s benefits (Managementmarketing, 2018). Therefore, the business organisations can maintain proper organisational performance per year. The agency theory can help business organisations to increase the number of shareholders in the business. Therefore, the business organisation can maintain high share capital per year. Hence, the companies can take favourable financial decision in future. Additionally, due to high equity share capital, the companies can take proper investment decision. High income of the company can also help to improve dividend policies in future.

Clarification of the theories impact in 3 main financial management decision

The business organisations can use these corporate financial theories and take decision of their financing, investment and dividend decision.

i) In relation to the agency theory, managers of business, organisations can be able to make an accurate decision to reduce their annual cost. Moreover, based on market reputation of business organisations the managers can easily expand their share price. Hence, equity capital of the companies can expand per year.

ii) The agency theory can help the business organisation in the investment making decision. As it can increase the equity share capital in the business, therefore, the managers can identify their investment capabilities. In the opinions of Bosse & Phillips (2016), in case the benefits are high then managers are able to in expanding make investment in the market. This can help to expand market shares.

iii) Based on the agency theory the business organisations can understand then shareholders requirements. Henceforth, the companies can improve their dividend policies in the business and provide favourable dividend to the sha

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