BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

Investors generally can make one vote for each share of stock they hold. TIAA-CREF is the largest institutional shareholder in the United States; therefore, it holds many shares and has more votes than any other organization. Traditionally, this fund has acted as a passive investor, just going along with management However, in 1993, it mailed a notice to all 1,500 companies whose stocks it held that henceforth it planned to actively intervene if, in its opinion, management was not performing well. Its goal was to improve corporate performance to boost the prices of the stocks it held. It also wanted to encourage corporate boards to appoint a majority of independent (outside) directors; and it stated that it would vote against any directors of firms that “don’t have an effective, independent board that can challenge the CEO.”

In the past, TIAA-CREF responded to poor performance by “voting with its feet,” which means selling stocks that were not doing well. However, by 1993, that position had become difficult to maintain for two reasons. First, the fund invested a large part of its assets in “index funds,” which hold stocks in accordance with their percentage value in the broad stock market. Furthermore, TIAA-CREF owns such large blocks of stocks in many companies that if it tried to sell out, doing so would severely depress the prices of those stocks. Thus, TIAA- CREF is locked in to a large extent, which led to its decision to become a more active investor.

  1. a. Is TIAA-CREF an ordinary shareholder? Explain.
  2. b. Due to its asset size, TIAA-CREF owns many shares in a number of companies. The fund’s management plans to vote those shares. However, TIAA-CREF is owned by many thousands of investors. Should the fund’s managers vote its shares, or should it pass those votes, on a pro rata basis, back to its own shareholders? Explain.

(a)

Summary Introduction

To explain: T is ordinary shareholder or not.

Introduction:

Direct Stockholder’s Intervention: Most of the shares are owned by institutional investors such as insurance companies pension funds, and rather than individual. These institutional investor control over the firm’s operation and oversee the management operation.

Explanation

T is one of the largest institutional shareholders in the ...

(b)

Summary Introduction

To explain: The manager should vote its shares or should pass those votes on a pro-rata basis, back to its own shareholders.

Introduction:

Direct Stockholder’s Intervention: Most of the shares are owned by institutional investors such as insurance companies pension funds, and rather than individual. These institutional investor control over the firm’s operation and oversee the management operation.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What is the purpose of the Sarbanes-Oxley Act?

College Accounting, Chapters 1-27

PV OF A CASH FLOW STREAM A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Identify four disadvantages of a partnership form of business organization.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

How is depletion determined?

Survey of Accounting (Accounting I)