(a) What is a multinational company? Describe the differences between shareholders’ wealth maximisation objective and corporate wealth maximisation objective of multinational companies.
(Note: Corporate wealth maximisation objective is also known as stakeholder capitalism model).
(b) Explain how, and why, the decisions of multinational companies that have shareholders’ wealth maximisation objective may be different from the decisions of multinational companies that have corporate wealth maximisation objective on the following issues:
divesting of operations in order to achieve focus;
use of a high degree of financial leverage;
diversification that will create a conglomerate; and
being a part of an interlocking directorate.
(a) How can the existence of imperfect markets lead to the establishment of subsidiaries in foreign markets?
(b) Describe the agency problems that may occur in an MNC.
(c) Explain why the agency problems in an MNC may be larger than those in a purely domestic company.
(d) What strategies can an MNC use to reduce the agency problems that you described in (b) above?
(a) Why do multinational companies exist?
(b) What problems are multinational companies likely to encounter in their operations in global markets? How can they overcome the problems?