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Explain how three internal governance mechanisms -ownership

Explain how three internal governance mechanisms -ownership concentration, the board of directors, and executive compensation--are used to monitor and control managerial decisions.

Explain why ownership has been largely separated from managerial control in the modern corporation.

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Ownership concentration is used to monitor and control managerial decisions because from a relative standpoint, the greater the number of shares owned by an individual or a corporation, the greater influence that they have on the company. This directly affects managerial decisions because if Company Y owns a majority of the stock of the company, when the company makes certain managerial decisions, they will not make decisions that would in any way upset Company Y's opinion or operations of the company. Because Company Y owns a high percentage of stock in the company, Company Y will want to monitor the major decisions of the company, including both financial and managerial decisions. By doing so, Company Y is taking their best effort to ensure that their investment is a success, and that they are provided with a good return on their investment, because they are monitoring and controlling the decisions of the company. This prevents the company from making a decision that could potentially damage the company financially, and that which the ...

Solution Summary

Explain how three internal governance mechanisms -ownership concentration, the board of directors, and executive compensation--are used to monitor and control managerial decisions.

Explain why ownership has been largely separated from managerial control in the modern corporation.

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