Question

Why management and stockholders having differences while running an organization? ( write at least two paper )

Answer 1

Conflicts between management and it shareholders are usually referred to as agency cost and are borne by shareholders.

- Management team are more willing to take an higher level of risk- operating financial or investing.

While shareholders desire maximised returns inform of capital gains and dividends.

-Shareholders are generally risk- averse , which is conservative..on the other side management team receives a large portion of its compensation in annual salaries and stock options, so managers have less to lose because salaries are constant and stock option values rise in response to increased volatility, a form of risk.

-The dividends that stockholders receive and the value of their stock shares depend on the business's profit perform. Manager' s job depend on living upto the business's profit goals.

- Management teams sometime alter capital structure- the mix of debt and equity financing employed in ways that preserve a level of control rather than a mix that maximised wealth for shareholder.

- Shareholders often view excess cash on a company's balance sheet and agitate for its return to shareholders in form of cash dividend or the repurchase of shares which boosts stock values.

However management want to raise capital to invest in new project.Management doesn't want to repurchase share just for appeasing shareholders. They want to take the decision one in case of Company' s share are undervalued.

So, above are some reasons which create differences between both parties because both are having own interests.

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