This paper will discuss why authority ordinances are necessitated and the reason why they are need with a market economic system. The rationale for the intervention of government in the market process in the U. S. Assuming that the merger faces some threats and that the industry decides on self-expansion as an alternative strategy, the additional complexities that would arise under this new scenario of expansion via capital projects will also be discussed. Will analyze the different forces that will come together to create a convergence between the interests of stockholders and managers.
Government Regulation in the Market Economy It is significant for the companies and organizations to concern all legal and law regulatory authorities before mergers and acquisitions. There are comprehensive requirement that authorizes the company to intervene in any action that could lead towards merger and acquisition. This is for the benefits for all the organization in case for instances in some mishaps the government could take some legal actions against the transaction.
The other thing is that there are certain laws, in case of the international mergers, the tax policies and trading policies should be practiced in order to regulate and the actions can be practiced easily. This is done in order to do the system aligned so that all the beneficiaries could follow the same standardized rules and regulations. There was no objective for the authorities to be involved in business. The authorities desired that businesses should act upon their own best interests without any help from the government. The single most important role of the authorities in any business would be that of being the arbitrator only.
Enforcing business contracts, collecting taxes, and protecting business property are just to name a few of the roles that the government plays. Under the role of protecting business property, the authorities would furnish fire, constabulary, and military protection. The required regulation of the government in a market economy especially in the Car industry are: a- Providing the economy with a legal structure. This the first and most important function a government should provide and without it an economy may collapse. This function requires the government to ensure property rights,
provide enforcement of contracts, act as a referee and impose penalties to foul play. In order to perform this function, the government should furnish the economy with regulations, legislation, and means that ensure product quality, define ownership rights and enforce contracts. b- Maintaining competition: since competition is the optimal and efficient market mechanism that encourages producers and resource suppliers to respond to price signals a consumer sovereignty, the government should fight monopoly power and non competitive behavior. c- Provision of public and quasi public good.
When the markets fail to provide the needed goods of the correct amounts of certain goods or services, the government fills the vacuum, examples of public goods that the markets do not provide are defense, security, police protection and the judicial system. d- Promoting growth and stability. The government should promote macroeconomic growth and stability (increasing the GDP, fighting inflation and unemployment) through changes in its fiscal and monetary policies (Hassan, A. , 2008). Intervention of the Government in U. S. Market Process Market processes are the most complex process in terms of mergers and acquisitions in the U.
S; this is the reason why the government of U. S focus more on mergers and acquisitions of market processes. The government could also intervene in order to regulate the resources and allocate the right amount of the resources for the improvement in the economies and social welfare. The government wanted to improve and correct the failures that have been taking place all over the market, and to distribute the resources and the income equally in the market place. The government also intervenes in the market process with the intention to improves and enhances the performance if the economy (Government in Market, 2009).
The government intervenes in the market process in two ways, firstly the government can put legislations and regulations, secondly they can out the direct state provision of goods and services. Government regulation of private industry can be divided into two categories — economic regulation and social regulation. Economic regulation seeks, primarily, to control prices. Designed in theory to protect consumers and certain companies from more powerful companies, it often is justified on the grounds that fully competitive market conditions do not exist and therefore cannot provide such protections themselves.
In many cases, however, economic regulations were developed to protect companies from what they described as destructive competition with each other. Social regulation, on the other hand, promotes objectives that are not economic — such as safer workplaces or a cleaner environment. Social regulations seek to discourage or prohibit harmful corporate behavior or to encourage behavior deemed socially desirable. The government controls smokestack emissions from factories, for instance, and it provides tax breaks to companies that offer their employees health and retirement benefits that meet certain standards.
American history has seen the pendulum swing repeatedly between laissez-faire principles and demands for government regulation of both types (U. S. department of state, n. d. ) Capital Project Expansion Scenario The new trend in the automobile industry, as well as many other industries, is consolidation. With increased technology and economies of scope and scale, companies wanted to capitalize on the benefits of being a larger company, so they frequently merged.
Two notable consolidations were Chrysler merging with Daimler-Benz in the summer of 1998 and Ford acquiring Volvo in early 1999. So, with all of these changes going on in the automobile industry, it was no wonder that Ford felt like it needed to make some changes within its organization to compete. In Case of self expansion as an alternative strategy in case of the company fail to merge due to several threats, there are a lot of complexities that would arise under this new strategy scenario of expansion via capital projects.
It is essential for businesses that are undergoing expansion to establish or update systems for monitoring cash flow, tracking inventories and deliveries, managing finances, tracking human resources information, and myriad other aspects of the rapidly expanding business operation. If you double the size of the company, the number of bills you have goes up by a factor of six. In addition, growing enterprises often have to invest in more sophisticated communication systems in order to provide adequate support to various business operations. The company should, take advantage of trade agreements: think outside the border.
To successfully compete in today’s global marketplace, the company must understand trade agreements and preference programs and how they can impact its business. Decisions about where to set up a business venture, how to locate the best sourcing opportunities, and how to develop a strategic plan for the future are all dependent on a thorough knowledge of the trade opportunities these programs provide. Protect brand at all costs. Protecting the company brand means protecting the company’s image as well as its intellectual property. Maintain high ethical standards.
Maintaining the highest ethical standards has become a business necessity in today’s international climate. The company must establish its own standards of acceptable conduct, communicate those standards both internally, and enforce those standards through internal monitoring systems. Stay secure in an insecure world. As companies tighten up security, they are beginning to see that there are ancillary benefits to greater control over the supply chain in the form of improved efficiencies, inventory management, and loss prevention. Expect the unexpected.
When managing a global business, the company must be prepared to deal with situations that aren’t covered in traditional business plans. Whether the event creates opportunity or peril, how you prepare and plan to react to the unexpected must become an essential part of the company global strategy. Shareholders and Managers An agency relationship arises whenever a person or a group of persons hire another person or a group of persons to perform some service on behalf of the former. The Principal, on whose behalf the Agent performs the particular service, delegates the decision making authority to the agent.
In large firms as in Ford, shares are likely to be diversely held. In such circumstances, the actions of shareholders are likely to be restricted in practical terms. Therefore, the responsibility of running the business will be with the board of directors. The directors may own only a small percentage of the share capital of the company. When ownership is so separated from the day-to-day management of the firm, a possible conflict can arise. The managers of the firm are essentially agents of shareholders. They are appointed for running the firm in the shareholders’ best interests.
However shareholders have little opportunity to assess whether the managers are acting in the shareholders’ best interests. Managers may be encouraged to behave in ways that are not most favorable to the shareholders of the company. Shareholders can spread their risk by investing in a number of firms. But the managers may be averse to investing in risky investments. Although shareholders wealth is maximized by investing in projects with positive net present values, managers may be more interested in short term payback in order to help further their own promotional prospects.
Managers of firms which are subject to takeover bids often try to resist the predator. When the takeover bid succeeds, the managers of the acquired company often lose their jobs and status while the shareholders of the acquired company often receive large gains in the value of their shares. Managers may be motivated to award themselves and the staff better terms and conditions of service which will incur costs and reduce profits. If shareholders are losing as a result, they may sell their shares and the market value of the firm will fall.
Therefore the agency relationship between shareholders and managers has agency conflicts, or conflicts of interest between agents and principals. It has implications for corporate governance and business ethics. It also has agency costs which are costs incurred in order to maintain an effective agency relationship such as management performance bonuses to persuade managers to act in the shareholders’ interests. Agency theory attempts to explain elements of organizational behavior through an understanding of the relationship between principals and agents.
According to agency theory there may be conflicts between the actions undertaken by agents in furtherance of their self interest and those required to promote the interests of the principals. Agency theory suggests that managers may seek to maximize their own benefit at the expense of shareholders. One way of dealing with shareholder-manager agency conflicts is that managers are compensated on the basis of changes of the value of the business. Since managers have great incentives to maximize shareholder wealth, the agency costs are low in this case.
The other method of dealing with the problem is shareholders monitoring every managerial action. This method is extremely costly and inefficient. The most favorable solution lies between these two extremes where managers compensation is coupled with the performance while monitoring their actions. Large companies employ performance shares schemes where shares of the company are offered to managers on the basis of financial performance such as earnings per share, return on assets, return on equity, and share price.
These compensation schemes are designed to ensure managers take actions that will enhance shareholder wealth and to facilitate companies attract and retain the best managers. In a profit-making organization, it is essential for all members of the management team and their staff work together and achieve the strategic objectives of the organization. The situation which leads the individuals or groups to take actions which are in their self-interest and also in the best interest of the organization is called Goal Congruence. References Hassan, A. (2008). The Role of Government in a Market Economy .
Retrieved on November 2008 from https://docs. google. com/viewer? a=v&q=cache:LDImXhx824EJ:www. econ. ohio-state. edu/Aly/docs/The%2520role%2520of%2520government%2520MS%2520Article%25209-27-08. pdf+the+major+reasonsfor+the+governement+invlvement+in+the+market+economy&hl=en&gl=us&pid=bl&srcid=ADGEEShqFQWSl5t5hvaRwuQD0SiKkCDYPiIMiMUSzRvgAVnvz0LwQ0hlBmHtAOO5s2ZBWmMFCCLwG1OU-kSGXx8TkTwDiCzdTW4H8LvLrUB_xjkXh0igPEeYTIbK3kG4JB2tZ4Zs1jcO&sig=AHIEtbRWYNRmlQyAVUa4sieBqYUbqHOREQ Department Of State (n. d. ). Retrieved on n. d. http://countrystudies. us/united-states/economy-6. htm