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3.6 Event risk

This is not unlike default risk but it is a special case meriting its own category. The shareholders or management of a company might consciously and voluntarily enter into a major transaction that radically changes either the company's nature or its capital structure (that is, the balance and mix of shares and various types of debt in its overall sources of finance). Such a restructuring might cause some or all investors to suffer a significant increase in the uncertainty of their investment
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2.2 Calculating returns

Our first question was: what is the mean expected total return for next year? We calculate this by taking each of the possible returns and weighting it by its relative probability. As our table is so simple and symmetrical, it is not difficult to see that the weighted mean return is 7% per annum.

Our second question was: what is the degree of risk or uncertainty in this mean figure? In other words, how widely dispersed are the possible outcomes around the mean expected outcome? The most
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2.2 The classic six-stage project management model

This model also consists of stages, but, unlike the sequential flow of the project life-cycle, the six-stage model assumes that some stages are carried out simultaneously. In particular, the model (Figure 3) assumes that communications will take place throughout the project. It also assumes that team building, leading and motivatio
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1.8 Summary

In this unit we have looked at how companies raise equity finance.

We have examined how companies may move from private equity finance, supported by the venture capital companies, to public equity finance through an IPO. We then went on to study seasoned or secondary equity offerings (SEOs) with particular focus on rights issues.

We looked at why companies may choose to list on more than one exchange and at the circumstances that might lead to a company de-listing and reverting to
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1.3 ‘Going public’

For many companies a point may be reached, particularly if the company has grown significantly in size and has aspirations for further expansion, to seek equity finance through an initial public offering of shares (IPO).

SAQ 4

In a recent
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Learning outcomes

After studying this unit you should be able to:

  • understand private equity and the role of venture capital companies in providing this;

  • understand why and how public equity issues can be undertaken;

  • look at the reasons for cross-listing on stock exchanges;

  • examine why a company might de-list from an exchange and return to private ownership.


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Introduction

This unit looks at equity finance – the range of equity instruments and markets available to a company. First, we look at private equity and the role of venture capital companies that provide such finance. We look at the mechanics of an initial public offering (IPO) and at recent cases of companies ‘listing’ on a stock exchange for the first time. We go on to explore certain important strategic issues for a business when considering equity finance:

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Acknowledgements

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Unit Image

Zohar_Manor-Abel

All other materials included in this unit are derived from content originated at the Open University.

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1.1 Definitions

The need for corporate governance arises out of the divorce in modern corporations between the rights of shareholders and other suppliers of capital on the one hand, and the operational control, which is in the hands of professional managers, on the other. This can be described as the ‘principal–agent’ problem. Put simply, the question is: will the managers run the corporation exclusively for the long-term benefit of the shareholders, and what mechanisms can be put in place to ensure th
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Acknowledgements

Except for third party materials and otherwise stated (see terms and conditions), this content is made available under a Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Licence

All materials included in this unit are derived from content originated at the Open University.


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References

Adams, J. (1995) Risk, London, Routledge, Taylor & Francis.
Anderson, N.R. (1992) ‘Eight decades of employment interview research: a retrospective meta-review and prospective commentary’, European Work and Organizational Psychologist, vol. 2, pp.1–32.
Bazerman, M. (1998) Judgement in Managerial Decision Making, New York, John Wiley.

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6.5 The social construction of quantifiable risk

Earlier in this unit we referred to the way in which social groups can develop shared cognitive schema. One important role for shared cognitive schema is to define the risks that we pay attention to, the dread in which we hold them and the perceived likelihood of their occurrence. Because these perceptions affect behaviour, they also play a role in selecting the risks that we face. In the last half century, some sociologists suggest (e.g. Beck, 1992; Giddens, 1990) that our concerns with risk
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5.5 Social pressures which affect our decision making

Broadly, there are three kinds of social pressure which affect how we make decisions:

  • coercive

  • mimetic

  • normative.

We look at these in more detail below.


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4.5 Deciding: problems of judgement

We are constantly bombarded by information. Simply walking though a room risks flooding us with more sensory information that we can possibly process. Stop for a moment and consider all the different things you can see, hear, smell, or feel.


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3.3 Limitations of the rational-economic perspective

As an approach to understanding economic life, the assumption of formal rationality has been very successful. For example, there is great deal of evidence that, on average, prices in financial markets behave as if investors were formally rational. However, there is also a great deal of evidence that individuals do not behave in this way (e.g. de Bondt, 1998). Even within the field of financial economics, there is increasing interest in developing theories of market behaviour which take better
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6.1 Introduction

Buchanan and Badham (1999) suggest that political behaviour can be usefully evaluated against four criteria to help determine whether it is acceptable or whether it is not:

Four criteria to determine whether political behaviour is acceptable

  1. Is the behaviour e
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References

Frame, J.D. (1987) Managing Projects in Organizations: How to Make the Best Use of Time, Techniques and People, San Francisco, Jossey Bass.
Buzan, T. (1982) Use Your Head, London, Ariel Books.

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6 The stakeholders and their interests

Anyone in the organisation, or outside it, who has or might have a legitimate interest in the project and its outputs or outcomes, is a stakeholder. You need to identify these people and groups so that you can make sure you meet their expectations and manage the influence they may wish to exert over the progress of the project. Particularly important among the stakeholders will be:

  • the project sponsor – the person or group who set up the project, au
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Introduction

Many managers find that they are required to manage projects. In this unit we aim to help you to take an overview of the features of a project and the issues that arise in managing a project. Once you have identified a piece of work as a project, you are able to use a number of management approaches that have proven effective in managing projects. A project is a one-off, non-repeated activity or set of tasks that achieves clearly stated objectives within a time limit. Most projects are goal-o
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1.7.2 Summary

  • The EU is an economic, juridical and, to a certain extent, a political reality but a single European public space has not emerged yet.

  • The establishment of European citizenship could play a crucial part in fostering a common European public space.

  • European citizenship could encourage Europeans to play a more active role in EU affairs and participate in governance processes.


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