Notes On Bank Ownership And Performance

Even though managers may not always aim for the same as shareholders in terms of maximising profits, they must ensure that they do generate good levels of profits. So in short run managers may not want to maximise profits but they must address this in the long run .Otherwise shareholder may become dissatisfied and either vote out managers at the AGM or they will just sell their stake in the firm and if this is done on large scale the firm may become prone to a takeover.

There are three internal and one external governance mechanisms used for owners to govern managers to ensure they comply with their responsibility to satisfy stakeholders and shareholder’s needs. First, ownership concentration is stated as the number of large-block shareholders and the total percentage of the shares they own (Hitt, Ireland, Hoskisson, 2017, p. 317). Second, the board of directors which are elected by the shareholders. Their primary duty is to act in the owner’s best interest and to monitor and control the businesses top-level managers (Hitt, Ireland, Hoskisson, 2017, p. 319). Third, is the

Although stock implies ownership, few equity investors expect to play a role in running the companies whose shares they buy. Such firms are widely held, and few stockholders have large enough blocks of stock to influence management decisions. In small business, of course, owners usually run their companies.

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

Shareholder theory refers to a concept which recognises the responsibilities of corporations in the world now, be it economical, legality and ethicality (Solomon, pg 22). However, the idea is that the managers primarily have a task to improve the shareholders’ interest in the way that is approved by law or social values. The theory is that they might own shares of stock in business and has employed certain managers to run their company and would have a reward investment risk. On the contrary, they would also face a downfall which is, they focus too much on profit even at expenses of illegal and unethical

This situation can lead to negative consequences for a business when its executives or management direct the organization to act in the best interest of themselves instead of the best interest of its owners or shareholders. Stockholders of the enterprise can keep this problem from arises by attempting to align the interest of management with that of themselves. This normally occurs through incentive pay, stock compensation, or other similar incentive packages that now cause the managers financial success to be tied to that of the company (Garcia, Rodriguez-Sanchez, & Fdez-Valdivia, 2015; Cui, Zhao, & Tang, 2007; Bruhl, 2003; Carols & Nicholas,

In this essay I plan to show what consequences there are from a separation of ownership from control and what effects could occur as a result. I will be arguing whether managers are worth the cost of hiring, to the business as a whole, giving examples of problems that may arise in these types of situations and what impact they can cause. The separation of ownership in large firms is when the owners appoint paid managers to run their businesses, causing ownership to be divorced from control. Diseconomies of scale are the forces that cause larger firms to produce goods and services at increased per-unit costs.

In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events

American corporations and American society have been under the impression that shareholder primacy— corporate managers should be focused on the shareholder’s interest to maximize shareholder value— is the way to run a corporation, however, United States corporate law does not require directors of public corporations to maximize shareholders value; it is just one possible objective. American law protects the directors’ authority to sacrifice shareholders value in the quest of other corporate goals. Directors and executives of large corporations have the right to do “what is best for the corporation in the long run” (Stout page 46) they are free to run the corporation as they please and maximizing shareholder value is not the main concern for the corporation. Stout also argues that shareholders are neither owners, nor principals, nor residual claimants of the corporation. “Corporations are independent entities that own themselves” (Stout page 52) shareholders do not own the corporation they own shares of stock, which is a contract that provides restricted rights to the corporation. The belief that shareholders are the only residual claimants is a false statement because the corporation itself is the only residual claimant and the board of directors elects what to do with the left over residual funds. Finally, Stout argues that the lack of empirical evidence

The corporate ownership structure is the most popular structure for large companies. Often when family is involved, unnecessary family issues can interfere with the business. Corporate ownership keeps employees competitive, as their jobs within

Due to the fact that banks are highly leveraged organizations an ROA above 1% indicates substantial profits. However, U.S. Bancorp’s ROA has decreased .06%, suggesting management has become less efficient and should focus on increasing efficiency. In comparison to Bank of Americas ROA of .74%, U.S. Bancorp demonstrates significantly better efficiency at turning investments into net income. In addition, ROE demonstrates how much profit a company is able to generate with funds invested by shareholders, by illustrating whether shareholders return on equity is an attractive investment decision (Keown et al., 2014). Over the past two years U.S. Bancorp’s ability to create profit from shareholder funds has decreased, in 2015 their ROE was 12.67% whereas, in 2014 it was 13.38%. If their ROE keeps decreasing the organization may need to find alternative investments in order to provide greater return to their shareholders. On contrary, U.S. Bancorp shows a greater ability to increase shareholder returns than Bank of America who only has an ROE of 6.20%. Overall when analyzing U.S. Bancorp’s profitability with ROA and ROE, they have outperformed their competitor, however, both measurements had decreased between 2014 and 2015, suggesting a change of strategy may be needed.

Before discussing the structure, conduct and recent performance of the UK banking sector, it is useful to provide an insight in the recent global financial crisis caused by the sub-prime mortgage crisis initiated in the US and underline its effects on the banking industry in the UK. It all started with the collapse of the housing bubble in the US, as borrowers were no longer able to meet their financial obligations and as consequence many of these subprime mortgages became default and the market became illiquid while banks were struggling to obtain funds which resulted into devastating losses for banks and mortgage lenders. Through securitization many of these loans were initially transferred into asset backed securities and

A company’s management team is also a big factor which can affect a company’s bottom line as well as it’s market valuation. A great management team can turn an unprofitable business model into a profitable one, but conversely, a bad management team can convert a profitable business into an unprofitable one—this is why Warren Buffet is an admirer of company’s that are so easy to run that an idiot can run them because sooner or later one will.

According to Hutton (1995), the financial systems in the UK and US are stock market oriented, which require high returns relatively. The major organizations are controlled by stock-holders in the US. These financial institutions operate their business while trading shares in an intense competitive stock market, which makes them to adjust and react quickly to changing market conditions. Hence such unstable investment environment forces all the companies take the risk of being merged or taken over by rivals as long as they occupy their shares largely on the stock

Nevertheless if companies operate in weak markets and fail to create growth and profit the concept of maximization of shareholder wealth is also an opportunity for self-regulation and security against threats for a company. This approach is in particular useful for safeguarding against difficulties arising from wrong or misguided leadership within a corporation. Shareholders of a company have the strongest interest in a company’s success because they often invest a lot of capital in the business and require revenues for their deposit (Moore, 2002). As a matter of fact, they become more