Finance Assignment Harvard Case Solution & Analysis

OWNERSHIP STRRUCTURE

There also exists a very strong relationship between the ownership structure of the company and the firm performance. There are different views among different scholar for this issue. Berle and Means (1932) state that the more there is dispersion in the ownership structure of the company; the management would be that much distinguished from the ownership. On the other hand, Meckling (1976) states that this dispersion might create further problems between the debtors and the shareholder or between the shareholders and the managers. There are also differences among the owner manager and the non-owner managed firms. Morck, Shleifer and Vishny (1988) state that, the relationship between the firm performance and ownership structure is non linear. However, Demsetz and Lehn (1985) have challenged all such arguments and also to the arguments placed by Berle and Means (1932). They have argued that as the corporate ownership differs across the organizations, the firm performance is positively impacted. Apart from this Hill and Snell (1989) state that the relation between the equity ownership measured by Tobin’s Q as a proxy and the firm performance is found to be significantly curvilinear relationship among Q and the number of the shares that are held by the inside management.

DATA & METHODOLOGY

The analysis has been performed on each area based on the relevant data that has been obtained from many sources. The literature review has been cited properly and the information has been taken from different research articles and different articles that were published recently in 2014. Apart from that, the cost of capital for both the chosen companies has been calculated based on the information obtained from many sources all of which have been referenced in the end of this report. The annual reports for the respective companies have been downloaded from their respective websites. Information relating to the corporate governance, dividend policy, risk and return and the financial performance of the company has been obtained from these reports.

ANALYSIS OF FINDINGS

CORPORATE GOVERNANCE ANALYSIS

If we talk about the Saudi Telecom Company, the board of the company has implemented the sound practices of the corporate governance principles. The board is allowed to set up committees that are fit to work in a manner which will lead to increased efficiency and the effectiveness of the Board. The Board of the company attests that the internal controls related to the financial statements of the company operate efficiently and effectively and that the financial statements are prepared without any errors or omissions. The role of the CEO and the Chairman has also been segregated in the organization. In order to implement the sound practices of corporate governance in the organization, two teams were formed; one team was formed from within the company and the second team was formed out of the company. The first team is responsible for documenting and studying the current status of the company and the second team is responsible for summarizing the practices of corporate governance in the three foreign countries, three Arab countries and the GCC.

On the other hand, Emirates Integrated Telecommunications Company has also implemented sound corporate governance practices. The companies have already taken many initiatives to implement sound internal control systems to control the risks being faced by the company and these standards must be followed by the Board of Directors and all the employees of the company. Apart from this, the ownership structure is also formed according to the best practices. The CEO and the Chairman have separate tasks of supervision and decision making. The company is taking initiatives to adhere to the best international business practices. It is implementing the recommendations of Securities and Commodities Authority and the Dubai Financial market.

There are strong channels of communication between the board and the shareholders in both the organization and this increases the level of transparency and consistency within all the staff practices. Apart from that, both the companies are paying strong attention to the corporate social responsibility of the organization towards its stakeholders. Both the companies have won many awards.

STOCKHOLDER ANALYSIS

If we look at the average return that is being provided to the shareholders of the company, then we can see that the Saudi Telecom Company is providing a higher rate of return over its stocks to its shareholders as compared to the Emirates Integrated Telecommunications Company’s return for the shareholders. The Saudi Telecom Company is a well established company which provides growth opportunities for its shareholders. Around 70% of the shares are acquired by the government and 16-4% shares are held by the public of Saudi Arabia. The remaining 7% and 6.6% is owned by general organizations and public pensions respectively..............................

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