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Question 1.A.10: Can you think why directors pursuing their own interests, ra...

Can you think why directors pursuing their own interests, rather than those of shareholders, may be a problem for society as a whole?

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If shareholders believe that their funds will be mismanaged, they will be reluctant to invest. A shortage of funds will lead to businesses making fewer investments. Furthermore, the costs of finance will increase as businesses compete for what limited funds are available. A lack of concern for shareholders can therefore have a profound effect on the performance of individual businesses and, with this, the health of the economy.

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