Agency problem

The agency problem in corporate finance arises when managers (agents) prioritize
their own interests over those of shareholders (owners). Managers may act in ways
that benefit themselves, like seeking higher pay or job security, rather than
maximizing shareholder wealth.

The agency problem in corporate finance arises when managers, who run a company
on behalf of shareholders, prioritize their own interests over shareholder interests.
This can lead to conflicts and impact the company's financial performance

Agency Cost

Agency cost in corporate finance refers to the expenses incurred by shareholders to

monitor and control managers. These costs arise due to conflicts of interest, as
managers may not always act in the best interest of shareholders. Implementing
mechanisms like bonuses helps align their interests and reduce such costs.
Examples include the expenses associated with audits, performance incentives, and
mechanisms to prevent managers from pursuing personal goals at the expense of
the company's financial health.

Managerial Goals

Managerial goals in corporate finance refer to the objectives that managers aim to
achieve in running a company. These goals often include maximizing shareholder
wealth, ensuring the company's profitability, and maintaining financial stability.
Managers may also focus on personal objectives such as job security, career
advancement, or receiving performance-related bonuses. Striking a balance between
aligning managerial goals with shareholder interests is crucial for effective corporate
governance and sustained financial success.

Separation of ownership and control

Separation of ownership and control in corporate finance means that the people who
own a company (shareholders) are not necessarily the ones managing it.
Shareholders delegate day-to-day decision-making to managers. This can lead to a
potential conflict of interest, as managers may prioritize personal goals over
shareholders' interests. Ensuring alignment between owners and managers is crucial
in corporate governance to prevent misuse of power and to promote actions that
maximize shareholder value. Mechanisms like effective corporate governance and
performance-based incentives are implemented to address this separation and
encourage managers to act in the best interest of shareholders.

The separation of ownership and control in corporate finance means that

shareholders own a company, but professional managers control its day-to-day
operations. This division can lead to potential conflicts of interest, as managers may
pursue personal goals that differ from the shareholders' best interests.

Primary Market

The primary market in corporate finance is where companies issue new stocks or
bonds directly to investors for the first time. It's like a company's first sale of shares,
and the money raised goes to the company for business needs, like expansion or
investment.

Secondary market

The secondary market in corporate finance is where investors buy and sell previously
issued securities, like stocks and bonds, among themselves. Companies don't directly
benefit from these transactions; instead, it's a marketplace for investors to trade
existing financial instruments.

The Partnership

A partnership in corporate finance is when two or more people join together to run a
business. They share the profits, losses, and responsibilities. Unlike big companies,
partnerships are smaller and the owners work closely together to make decisions and
manage the business.

The Corporation

A corporation in corporate finance is a big company that is separate from its owners.
People buy shares to become owners and share in profits. The company has its own
identity and is responsible for its debts, protecting owners from personal losses.