Long Term Investment Decisions - Essay Example

Long-Term Investment Decisions 11th March, Introduction This present management essay focuses on long-term investment decisions and it will explore various issues revolving around this subject in four different sub-sections within the essay. The first sub-section will look into why government regulations are needed in the market economy and the reason why they are not needed at times. Secondly, the essay will give reasons that justify the intervention of government in the market process in the United States.

The third sub-section will highlight on the additional complexities that would arise when an industry decides on self-expansion as an alternative strategy. In the fourth sub-section, the essay will analyze how different forces will come together to create a convergence between the interests of stakeholders and manager indicating the likely impact on profitability. Government regulation in market economy First, it is critical to note that market economy, refers to a market that is self-regulated using market forces of demand and supply.

Market economy therefore, thrives on the sense that there are no external forces to influence the direction of demand and supply (Balleisen and Moss, 2012). Balleisen and Moss (2012) in their writings stated that government regulations in the economy is at times not needed because it discourages competition and the regulations seemingly seek to favor the public companies, thereby discouraging private businesses. Secondly, government regulations in the market discourage competition thereby enabling low quality goods and services to flourish in the market.

However, Balleisen and Moss (2012) further noted that at times government regulations are needed in the market to protect consumers from exploitation by the businesses. Secondly, government regulations are needed in order to ensure that businesses abide to industry best practices, they consider consumers interests, and contribute towards national development. For example, through government regulations, providers of public utilities or services such as electricity and water cannot overcharge because of government regulations that seek to prevent the public from such exploitation.

Additionally, government regulations forces businesses to pay taxes thereby contributing to national development and the regulations also force businesses to conserve the environment. Rationale for the intervention of government in the market process in the United States In the writings by Balleisen and Moss (2012), they stated that the United States is an example of a true market economy because there is minimal regulation of industries and there is more privatization of public corporations.

However, the United States government has been keen on increasing government regulations in the market processes more so in the past decade because of scandals or misappropriations that have emerged and were attributed to lack of government regulations or the existence of weak regulations that were ineffective. According to Balleisen and Moss (2012), an example of a government regulation that was enacted in the past decade is the Sarbanes-Oxley Act, which was enacted in 2002 under the title of ‘Public Company Accounting Reform and Investor Protection Act’ in the senate.

This government regulation was enacted in order to enhance the standards of public accounting firms, the management, and boards of public companies. The enactment of the Sarbanes-Oxley Act was justified by major scandals that had previously occurred in American corporations. Secondly, the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in 2010 to strictly regulate the financial sector of the country and to prevent factors that can contribute to an economic crisis. Complexities that affect self-expansion Rubinfeld and Hemingway (2005) described self-expansion as an alternative strategy whereby a business source for funds from its internal operations that include selling of shares in the capital market or generating revenues from the sale of company’s products and services.

Rubinfeld and Hemingway (2005) further stated that a business pursuing self-expansion would normally explore either market development, market penetration, or product development. Self-expansion as an alternative strategy presents certain complexities that include sourcing for funds from company’s limited resources. Because self-expansion relies on internal funds, it usually faces difficulties when being rolled out since the company has running expenses and therefore cumulating huge financial capital is usually difficult.

The second complexity associated with self-expansion is the risk that companies expose themselves to while using their limited resources for self-expansion, of which if the expansion programme becomes unsuccessful the company risks closing down. Thirdly, self-expansion presents complexity in the marketing function of the company since the marketers have to integrate the self-expansion programme in the marketing message. Another complexity associated with self-expansion is the upgrade that is usually required on infrastructure, human resources, and technology, which is time consuming and costly.

Convergence between the interest of stockholders and managers Dollinger (2006) referred to stockholders of a company as parties that have interest on the company and they normally comprise of the shareholders or owners of the company, the employees, the management, the suppliers, the debtors, the customers, and the surrounding environment where the company operates. It is significant to note that the different stakeholders of a company all have different interest on the company but the interest of managers in particular, is to ensure that the survival of the company is guaranteed and that shareholders get a good return on their investments.

Dollinger (2006) stated that convergence between the interest of stakeholders and the managers arises when the business conducts its operations in an ethical manner taking into consideration the interest or objective of each of the stakeholders. In particular, there is convergence of interest between the stakeholders and the managers when the business treats it workers well, receive timely payment from debtors, promptly pay creditors, generates good returns for the shareholders, and participate in corporate social responsibility, when there is convergence a business is usually able to make high profits.

Conclusion This present essay has explored various issues covering long-term investment decisions. First, it was observed that government regulations are at times necessary while at times they are unnecessary. Secondly, it was observed that the United States government has implemented government regulations in the market process in order to act as control measures against scandals. Thirdly, it was observed that the self-expansion alternative has various complexities that comprise of scarcity of funds, associated risks, marketing complexities, and upgrading complexities.

Fourthly, it was observed that stakeholders and managers interest converge when the business is able to fulfill the interest of each stakeholder that includes making profit. References Balleisen, E. and Moss, D. (2012). Government and Markets: Toward a New Theory of Regulation. England: Cambridge University Press Dollinger M. (2006). ‘Entrepreneurship strategies and Resources.’ (3rd edition). New Delhi, Pearson Education Rubinfeld, A. and Hemingway, C. (2005). Built for Growth: Expanding Your Business Around the Corner or Across the Globe.

New Jersey, U.S: Pearson Prentice Hall