BAC 815: FINANCIAL MANAGEMENT

ASSIGNMENT SEM I 2015/ 2016

NOTE
i.

The assignment should be typed

ii.

Hand in your assignment on 24th Oct 2015

QUESTION ONE
Instructions:
You are to review the journal stated below and provide a precise feedback to the questions posed
Review of Journal
Jensen, M. C., and Meckling, W. H. (1976), Theory of the Firm: Managerial Behavior, Agency
Costs and Ownership Structure, Journal of Financial Economics, 3, 305-360.
Required:
From this journal:
1. Provide the definition of the firm
2. Define the agency costs
3. Investigate the nature of the agency costs generated by the existence of debt and equity
4. Demonstrate who bears the agency costs
5. Critical issues in the journal
(20 MARKS)
All suggested solution should be based on the study. Quote the page number where
necessary.
QUESTION TWO
a. Distinguish between primary and secondary securities market.

4 marks

b. Despite the large investment in the securities exchange and the various government incentives,
only a few companies are listed at the stock exchange of the Eastern Africa countries This was
the opening remark by a guest speaker in a seminar whose theme was Developing our Capital
Market. For instance, in Kenya, only 62 companies are listed at the Nairobi Securities Exchange
(NSE, 2015) against thousands of registered companies (Registrar of companies, Kenya, 2015).
Required:
i.

The advantages of being listed at the securities exchange.

8 marks

ii.

Highlight and explain four factors that may hinder companies from being listed at the
securities exchange.
8
marks