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Finance and Financial Management Research

[Vienna, Austria - Jacek Dylag]



- What is Finance All About?

Finance is an applied branch of economics that studies the ways in which individuals, business entities, and other organizations allocate resources over time and make decisions in the presence of uncertainty.

A finance researcher is mainly responsible for exploring, analyzing, interpreting and presenting data related to markets, operations, finance/accounting, economics, customers, and other information related to the finance field.  Finance Research is typically very quantitative, analytical, logical, and you should be good at managing numbers and data. It presumes methodical search, collection, and analysis of information in order to form the right decisions. 


- Agency Costs

Costs incurred to resolve conflicts between managers, stockholders, and bondholders. Agency costs are the costs associated with the differences between the intentions of an agent and a principal, where the principal does not have complete control over the situation. These differences in viewpoint can lead to substantial additional costs or the loss of value. For example, when the managers of a company take the business in a direction that is disagreeable to shareholders, the shareholders are more likely to sell off their shares in the business, which reduces the market value of the shares. This decline in value is an agency cost.

As an example of agency costs, shareholders may want to increase earnings per share by focusing on cost cutting, while managers are more intent on spending money to increase their perks. Or, the senior managers  of a business engage in reporting fraud in order to increase the share price and cash in their stock options, after which the stock price drops, harming shareholders. Another relationship that can result in agency costs is between elected politicians and voters, where politicians may take actions that are detrimental to the interests of voters.


- Primary Goals of Financial Management

The primary goal of financial management is to maximize the wealth of the owner. The goal of all businesses is to maximize their profits, minimize their expenses, and maximize their market share. 

Financial management is the process that enables a business to plan, direct, organize, monitor and control its current and future financial resources and events. It involves applying the fundamental principles of management in financial activities such as purchasing, sales, capital expansion, inventory valuation, financial reporting, and profit distribution. 

Business organizations are organic in nature and their successful growth depends on the financial efficiency of operations and strategies. Therefore, the main objective of financial management is focused on short-term and long-term activities aimed at maximizing value creation from scarce financial resources. 

The long-term goal of financial management is ultimately to help a company maximize profits. To do this, financial managers need to focus on smaller, more specific financial management goals: planning, cost control, cash flow management, and legal compliance.



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