BUSINESS ECONOMICS

Slides by CAO Thi Hong Vinh

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 BUSINESS ECONOMICS
Main textbook:
Trefor, J., Business Economics
and Managerial Decision Making
Requirement:
Griffths, A. and Wall S., Economics for
Business and Management
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Chapter 1:
INTRODUCTION TO
BUSINESS ECONOMICS

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●Required: Business Economics and
Managerial Decision Making, C. 1
●Recommend: Economics for
Business and Management, C. 4

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  Economics +
Managerial perspectives
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Managerial economics
 Application of
microeconomic theories &
quantitative methods
to find optimal solutions to
managerial decision-making
problems.
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Regarding:
- Customers
- Suppliers
- Competitors
-The internal workings of the
organization
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 STRUCTURE
1. Objectives and methodology
2. Overview of a company
3. Ownership vs. managerial control
4.Outsider and Insider system of
corporate control
5.External and Internal constrains for
managerial discretion
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1. Objectives and methodology
1. Objectives:
 Optimal solutions for
decisions
2. Methodology:
- Fundamental theories
- Economic models
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2. Overview of a company
1. Types
2. Common characteristics
3. Ownership structure

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 2.1 Types of companies
Unincorporated vs. Incorporated
+ Legal identity: separate?
+ Liability: limited?
+ Formalities: complex?
(UK: Sole trader & Partnership vs.
Limited company & Holding company
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2.2 Common characteristics
- Owners
- Managers
- Objectives
- Resources
- Organization structures
- Performance assessment
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2.3 Ownership structure
-
Monistic: a single interest
group (shareholders  UK and
USA)
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Dualistic: two interest
groups (shareholders &
employees  Germany and
France)
- Pluralistic: stakeholders ( 13
 3. Ownership vs. Managerial
control
3.1 Definition
Spieler, A. C. and Murray, A. S. (2008),
Management Controlled Firms vs. Owner
Controlled Firms: A Historical Perspective of
Ownership Concentration in the US, East
Asia and the EU, Journal of International
Business and Law, Vol. 7, Issue 1.
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3.1 Definition
- Owner control occurs where the
equity holders of a firm maintain
sufficient control over the board of
directors to have a measureable influence
on policy either by direct control of votes
on the board of directors, or indirectly
through a sufficiently large share of the
voting stock

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3.1 Definition
- Manager control exists in a
firm where the shareholders fail to
achieve
sufficien board representation
t voting or stock control
managers allowing
to exercise more judgment
than would be possible under OC
regime.

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 Advantages
- Owner Control:
+ More productive & accountable to the
owner’s wishes
+ Align the interests of the owner and
the manager  less conflict
+ Help retain the ability of the owner to
control the future direction
+ Avoid the problem of agency
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 Advantages
- Manager Control:
+ Suitable for the complexity, scale, and
scope of a company’s operation
expansion
+ Protect minority shareholders
+ Possess specific knowledge that
bring effective management 
they specialize in their
department (kế toán trưởng)
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3.2 Criteria for classification
- ? A threshold/ a cut-off point
Berle and Means (1932): 20%
Radice (1971): 15% for the
largest shareholding

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3.2 Criteria for classification
- ? Control = f (X) – X là nhân tố ảnh
hưởng (determinants of control)
Cubbin and Leech (1983):
A probabilistic voting model:
+ Degree of control (probability of the
controlling shareholders securing
majority support in a contest vote)
+ Control (95% chance of winning a
vote)  dispersed 20
X:
- Size of largest holding
-Size and distribution of the remaining
shares
-Willingness of other shareholders to form
a voting block
-Willingness of other shareholders to be
active and to vote against the controlling
group
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Bài tập
Nhóm 1: tìm hiểu về insider & outsider. Lấy ví
dụ ở VN
Nhóm 2: profit maximization. Maximized là thế
nào? Thế nào là điểm maximize profit trên hình?
Trên thực tế, các doanh nghiệp có maximize
profit ko? Các doanh nghiệp ở VN có hướng tới
profit maximization ko?
Nhóm 3: sales revenue maximization.
Assumption là ntn? Dựa trên hình, có 2 trường
hợp fixed cost và bla bla thì sẽ thay đổi ntn
Bài tập
Nhóm 4: managerial utility model. Lí giải
model, cho biết situation để tối đa hóa utility
của các nhà quản lý trên thế giới và ở VN.
Nhóm 5: behavior model của simon và BM.
Social responsibility. Các doanh nghiệp ở
VN xử lý các mô hình hành vi và CSR của họ
ntn ?
 4. Insider vs. Outsider system
of Corporate control
Corporate governance
Griffiths and Wall: “Corporate governance
refers to the various arrangements within
companies which provide both authority and
accountability in its operations. In other
words, the various rules and procedures
which are in place to direct and control the
running of the company”
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Corporate control
- Insider systems:
+ Ownership: concentrated
+ Trading shares: large blocks
+ Relationship between management and
shareholders: close & stable
+ Board of directors or other senior managerial
positions: shareholders
+ Priority to stakeholders
 More active owner participation
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Corporate control
- Outsider systems:
+ Ownership: dispersed
+ Trading shares: easy (for investment)
+ Relationship between management and
shareholders: not close
+ Board of directors or other senior managerial
positions: owners and stakeholders
+ Priority to market regulations
 More active market for corporate control
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5. External & Internal constrains
 Constrains for objective-setting
- External constraints: Arises from the active
market in company shares (i.e. holder of large
blocks of shares, acquirer of blocks of shares…)
- Internal constraints: Arises from the role of
non
– executive board members and stakeholders (i.e.
Owners/shareholders, stakeholders, non-
executive directors)
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