THE UAL 1994 BUYOUT AS IT RELATES TO AGENCY THEORY

THE UAL 1994 BUYOUT AS IT RELATES TO AGENCY THEORY Finance 543 - Advanced pecuniary Theory February 19, 2001 INTRODUCTION The objectives of this paper is to examine the United Airlines (UAL) 1994 buyout and leveraged recapitalization and aver certain aspects of agency sup maculation as discussed in Jensen (1989). manner theory purports that the alignment of a companys managements goals with that of its owners through the sweetener of the observe process and incentive schemes will result in better performance. This amend performance should be visible in a companys operations, accounting and business line performance. In UALs situation, the improved performance was agnize shortly after the buyout; however, after sight a weeklong period (5 years) after the buyout, it appears that UALs performance declined in relation to the S&P 500 and the Dow Jones transportation system (DJT) indices. BACKGROUND          bow 1 summarizes the 1994 buyout of UAL. With the buyout, 3 major changes occurred that jibe to agency theory will align managements goals with that of the owners to maximize their wealth. First, move employees (employees) who owned 55% of the company were guaranteed three mount put (out of twelve in total). Denis (1994) infers that a reduction in bestride members results in more(prenominal) scrutiny of managements decisions and behaviors leading to a high business and higher performance.

In UALs case the number of board members remained high. In addition, overdue to time constraints I was unable to discover the fairness baffle of all board members combine. It is heavily researched as scripted by Jensen (1! 989) that a material equity position of board members combined leads to a higher level of monitoring. Second, UALs incentive system was drastically changed when employees received 55% of UAL in stock and pet stock with their ESOP account. The increase in equity position of the employees should inspire them to... If you want to get a full essay, entrap it on our website: BestEssayCheap.com

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