The Rise and Fall of Abc Learning

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The rise and fall of ABC Learning
The aspects of the business strategy of ABC Learning resulted in increased business risk for the company including: the rapid expansion of market share, over-indebt, and blinding overseas investment.
Rapid expansion of market share: ABC, which at its peak had almost 2200 centres in four countries, also had a flawed strategy to handle significant and rapid growth. When A.B.C. Learning Centers listed on the stock exchange in March 2001, it was a tiny operation with a market capitalization of just $25m. But five years later that number is approaching $2.5bn as the company has quickly become Australia's leading operator of childcare centers. ABC pursued acquisition after acquisition – buying up as many
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In this case, the system may be less regulated, and to the extent that they rely on individual judgment to interpret and implement the standards, there is a danger that they can be used to manipulate financial results.

Agency cost of debt refers to an increase in cost of debt when the interests of shareholders and management diverge. In this case, the relevant agency cost that lenders face may include large dividend payments that result in less money in the bank for loan repayment and new debt competes with old debt for repayment. Because the lack of symmetry information desires between the management of ABC learning and lenders, managers intended to maximize their personal wealth which may mean lenders’ welfare is not maximized. Based on the hypotheses that the higher the debt equity ratio the more likely managers are to use accounting methods that increase income, managers of ABC Learning may violate debt arrangements by manipulating equity. Moreover, the lenders are likely to face risk shifting in this case. Therefore, agency cost happens when ABC Learning engages in behaviors that benefit more than lenders.
For lenders, they could minimize the agency cost in shortening debt maturity, it can reduces the agency cost of borrowing in two ways. First, the increase in equity value from increasing the risk of the firm's assets is a decreasing function of debt maturity (Barnea, Haugen, and
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