Question

How will the accumulation of control rights in excess of cash flow rights affect firm value? Hint: Corporate Governance

Answer 1

when there is a separation of the ownership and the control of the business and managers of the company will always be having the control rights where as the share holders of the company will always be having the cash flow rights, so the divergence between both of them will be leading to changes in the firm value.

When there is excess of controls over the cash flow rights, it would lead to a conflict between the manager and the shareholders and it can be leading to the decrease in the overall value of the firm, because the prime objective of the managers to act in the best of the interest of the shareholders of the company will not be fulfilled, and they would be working for their own interest and they won't be maximizing the value of the company and it will fall.