What are some actions an entrenched management might take that would harm shareholders?

What are some actions an entrenched management might take that would harm shareholders?

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June 4, 2021
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What are some actions an entrenched management might take that would harm shareholders?

Answer and ExplanationSolution by a verified expert

Explanation

Activities of established management that may damage shareholders are:
 

Managers may acquire large amounts of non-pecuniary benefits such as membership fees, vacations and other benefits that reduce the profit available for distribution to the shareholders.

 

Managers may invest the generated free cash flow in other companies, marketable securities that increase the size of the firm but may not add any value.

 

Managers may invest most of their time and efforts in performing non-productive activities such as external activities such as travel or other leisurely activities, rather than focusing on profitable activities for the firm.

 

Managers may hide the required information from shareholders just to hide the losses which might affect the shareholders adversely. Managers may be restrained from sharing information because it might negatively impact their earnings or they might just not want to release bad news.

Verified Answer

Activities of ingrained management that may damage shareholders are:
 

Consumption of large perquisites out of corporate profits.
Misuse of free cash flow available with the firm.
Wastage of time over non-productive activities.
Massage of information in front of the shareholders.

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