Fin 538

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4) What is an agency relationship?
= It is the relationship between stockholders and management. Such a relationship exists whenever someone (the principal) hires another (the agent) to represent his or her interest.

5) What are agency problems and how they come about? What are agency costs? = Agency problem is the possibility of conflict of interest between the owners and management of a firm. They arise because the agent's and the principal's interests are not aligned. Maybe a real estate agent doesn't get paid a commission but rather gets paid a flat fee. Then the agent just wants to make a sale rather than get the highest price for the seller. = Agency cost is a type of internal cost that arises from, or must be paid to, an agent acting on behalf of a principal. Agency costs arise because of core problems such as conflicts of interest between shareholders and management. Shareholders wish for management to run the company in a way that increases shareholder value. But management may wish to grow the company in ways that maximize their personal power and wealth that may not be in the best interests of shareholders. 6) Listing requirements. Find the complete listing requirement for the New York Stock Exchange at www.nyse.com and NASDAQ at www.nasdaq.com . Which exchange has more stringent listing requirements? Why don’t the exchanges have the same listing requirements? = Listing requirement of the NYSE

To be listed on the New York Stock Exchange, a company is expected to meet certain qualifications and to be willing to keep the investing public informed on the progress of its affairs. The company must be a going concern, or be the successor to a going concern. In determining eligibility for listing, particular attention is given to such qualifications as: 1 ) the degree of national interest in the company; 2) its relative position and stability in the industry; and 3) whether it is engaged in an expanding industry, with prospects of at least maintaining its relative position.

Initial Listing
While each case is decided on its own merits, the NYSE generally requires the following as a minimum: Demonstrated earning power under competitive conditions of: either $2.5 million before Federal income taxes for the most recent year and $2 million pre-tax for each of the preceding two years, van aggregate for the last three fiscal years of $6.5 million together with a minimum in the most recent fiscal year of $4.5 million. (All three years must be profitable.) The adjusted net income standard is designed to provide the opportunity for substantial companies that are valued more on the basis of "cash flow" than reported income to list on the Exchange. The NYSE will consider each company on a case by case basis.

Net tangible assets of $40 million, but greater emphasis is placed on the aggregate market value of the common stock. Market value of publicly held shares, subject to adjustment depending on market conditions, within the following limits:

Maximum

$40,000,000
Minimum

$ 9,000,000
Present (12/31/97)

$40,000,000

(The market value requirement is subject to adjustment, based on the NYSE Composite Index of common stock prices. The base in effect as of December 31, 1991 is the Index on July 15, 1971 [55.06]. The Index as of January 15 and July 15 of each year [if lower than the base] is divided by the base, and the resulting percentage is multiplied by $40 million to produce the adjusted market value standard. The adjustment formula is used only when the current index is below the base.)

A total of 1,100,000 common shares publicly held. (If the unit of trading is less than 100 shares, the requirement relating to number of publicly held shares shall be reduced proportionately.) Either 2 000 holders of 100 shares or more, or of a unit of trading if less than 100 shares, or 2,200 total stockholders together with average monthly trading volume (for the most recent six...
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