popular press generally view vulture activity negatively B u s i n e s s F i n a n c e

Why does target firm management (and perhaps also the popular press) oppose activities by outside-the-firm economic agents even though the activity enhances the value of the target firm? When this occurs, financial economists generally argue that management’s incentives are not aligned with common stockholder interests. A conflict of interest between management and common stockholders is referred to as an agency conflict because management is supposed to act as the agent of common stockholders.

In the article by Hotchkiss and Mooradian, it is clear that the name “vulture” attributed to agents engaged in these activities has a negative connotation. Management and the popular press generally view vulture activity negatively. It is also clear that because vulture activity is costly to vultures, vultures would not engage in vulture activity if they did not believe that they would gain from their activity.

The objective of this discussion is to develop a broader examination of activities in financial markets where there is a conflict of interest between management and shareholders (and/or debtholders). Your contributions to this discussion will build upon the article “Vulture Investors and the Market for Control of Distressed Firms” by Hotchkiss and Mooradian. Make sure you have read this article carefully and reviewed the material in Lesson 1 before embarking on your posts. The article provides a number of popular press quotations that motivate the conflict between management and vulture investors who may be both shareholders and debtholders. In the case of vulture investing, management may be more interested in remaining in control of the distressed firm than creating value for the firm’s security or claim holders.

Your job is to locate one or more articles that examine agency conflicts between management and the firm’s security holders. You can find articles in academic or practitioner journals. You may also find references to this issue in the financial press, websites or blogs. Both types of references are important. Journal articles can provide a more structured and rigorous empirical analysis. The financial press, websites or blogs can provide anecdotal evidence, public policy prescriptions, or discussion of financial institutions designed to mitigate the agency conflict.

In your primary discussion post, you should summarize the contribution of your reference(s) and provide a link to the work you are citing. You must identify at least one unique contribution. You should also review contributions made by your colleagues to find common threads among articles and help to elaborate their posts.