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1. When viewing this concept of stockholders vs creditors, do we assume the manager just takes a puppet like position and follows the wishes of the shareholders, or is he trying to strike a balance between the interests of the creditor and the shareholder?
A principle agent problem would generally be that the manager pursues his own personal interests at the expense of the creditors and the shareholders. In order to solve this problem, creditors and shareholders try to offer incentives and monitor in order to reduce this problem. I'm not saying managers always pursue their own interests at the expense of these people, just that it's usually the principle agent problem I hear about.
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2. By using the loaned money from creditors to repurchase shares to lower the corporation share base, does this drive up stock holders return simply because the more shares bought the more the firm is worth and thus the more each share is worth?
I'm not exactly sure what you're asking. If a corporation bought up their own shares, this theoretically shouldn't change the price per share since a share is still worth 1/nth of the company. However, in reality, a corporation buying up shares
may send a signal to shareholders that those inside the company have reason to believe the stock is undervalued (i.e. those with inside information think it's undervalued). Or if we're still talking about the principle agent problem, it's possible that the corporation owning more shares could potentially lead to better incentives, more efficiency, smarter decisions, etc, and therefore higher stock prices.
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3. I don't understand the creditor side of the deal. So the creditor loans money to the company, looking to make interest on the loan when it is eventually repayed. He dislikes the repurchasing of shares because his money becomes tied up in stocks in the company, and the balance sheets are showing debt?
Again, I'm not completely sure what your asking (which is probably related to the fact that I'm new at this stuff). Are you asking, why do creditors loan money to the company instead of buying stock? If so, you have to understand that creditors get payed off first (i.e. have first dibs on the assets after bankruptcy, and therefore lower risk) and have a locked in interest rate (i.e. a fixed rate of return
if the company has enough money to pay them). Basically, stocks and bonds/debt are just two different forms of investing money. Bonds/debt is less risky, so people are going to want to have them in their portfolio instead of stock in the company (just due to risk aversion and diversification, although in reality there are also other reasons to buy bonds/debt).