List four ways in which managers may put their own interests ahead of the stockholders.

Expert Solution

THE FOUR WAYS IN WHICH THE MANAGERS MAY PUT THEIR OWN INTEREST AHEAD OF STAKEHOLDERS IS:

IF A MANAGER FANCIES A BIG ORGANIZATION FOR THEIR PERSONAL INTEREST ,AS A BIG ORGANIZATION WILL PROVIDE THEM WITH HIGHER SALARIES AND TO PROVE THAT DUE TO THEIR EFFORTS THERE IS GROWTH IN THE FIRM. THE MANAGERS WILL NOT DISTRIBUTE THE SURPLUS CASH AS DIVIDENDS TO THE SHAREHOLDERS INSTEAD INVEST IT IN GROWTH OPPORTUNITIES IN THE COMPANY.
IN THE EVENT OF A TAKEOVER, THE MANAGEMENT MIGHT ADOPT A STRATEGY TO PREVENT THE COMPANY FROM BEING TAKEN OVER,BY MAKING THE COMPANY UNATTRACTIVE. THIS STRATEGY IS ALSO CALLED THE "POISON PILL" EVEN THOUGH THE TAKEOVER MIGHT RESULT IN INCREASE OF SHARE PRICE AND THUS CREATE VALUE TO THE SHAREHOLDER.
THEY MIGHT DISTRIBUTE THE EARNINGS OF THE COMPANY TO CHARITABLE ORGANIZATIONS TO SATISFY THEIR EGO,AND INVEST IN PROJECTS THAT DID NOT ADD ANY VALUE TO THE COMPANY AND ITS STOCKS. HIGHER STOCKS BENEFIT THE SHAREHOLDER VALUE.
THE MANAGERS MAY EVEN MANIPULATE THE RESULTS OF THE FINANCIAL YEAR TO RECEIVE HIGHER BONUSES AND OTHER BENEFITS.

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