Question

In: Finance

1. The relationship between stockholders and management is an agency relationship. In such a relationship, possible...

1. The relationship between stockholders and management is an agency relationship. In such a relationship, possible conflicts of interest or agency problem could arise.

Explain five (5) control devices available to the shareholders to reduce the potential of agency problem and to ensure that management acts for the best interest of the stockholders.

Solutions

Expert Solution

Five controlling measures which are available to the shareholder to reduce the potential of agency problem are as follows-

A. Shareholder will be trying install and efficient communication system which will reduce and eliminate the communication gap with management.

B. Providing the management with compensation scale which is in relation to that of industry which will satisfy their personal interest in the organisation.

C. Providing for employee stock holders option which will provide an ownership stake for the employees of the company in the long run and they will try to maximize their interest by protecting the interest of shareholders.

D. Ensuring the management of their job in the long run and they should not be made to feel insecure about the job loss.

E. Providing a very high label of continuous channel of communication which will be providing for efficient solution of communication gap and it will reduce the communication gap between the management and the shareholders.


Related Solutions

In the agency relationship between managers and stockholders in a corporation, why do stockholders want to...
In the agency relationship between managers and stockholders in a corporation, why do stockholders want to take more risk than managers and why do managers want to take less risk than stockholders?
what the relationship between the agency theory and earnings management ?
what the relationship between the agency theory and earnings management ?
what the relationship between the agency theory and earnings management ?
what the relationship between the agency theory and earnings management ?
What is the agency relationship between shareholders ( or owners) and Managers ? what are agency...
What is the agency relationship between shareholders ( or owners) and Managers ? what are agency costs here in this relationship? What are the ways agency cost can be reduced ?
2. Agency conflicts between managers and shareholders Remember, an agency relationship can degenerate into an agency...
2. Agency conflicts between managers and shareholders Remember, an agency relationship can degenerate into an agency conflict when an agent acts in a manner that is not in the best interest of his or her principal. In large corporations, these conflicts most frequently involve the enrichment of the firm’s executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company’s shareholders. This usurping and reallocation of shareholder wealth is most likely...
what is the agency relationship between shareholders (or owners) and managers? What are agency costs here...
what is the agency relationship between shareholders (or owners) and managers? What are agency costs here in relationship? What are the ways agency costs can be reduced?
1.describe the agency relationship between agents and equity holders. 2.Discuss 3 agency problem associated with equity...
1.describe the agency relationship between agents and equity holders. 2.Discuss 3 agency problem associated with equity 3.Research project based on the topic of budget deficit financing in PICs?
1. Describe the difference between operational customer relationship management systems and analytical customer relationship management systems...
1. Describe the difference between operational customer relationship management systems and analytical customer relationship management systems 2. Discuss the difference between tacit knowledge and explicit knowledge and give some examples of each. 3. Discuss management and organization activities necessary to enable information system activities in a knowledge management system. Refer to Figure 11.1 in the text. 4. How is an expert system different from a neural network? 5.Discuss the difference between the classical model of management and the behavioral model...
A sales manager for an advertising agency believes there is a relationship between the number of...
A sales manager for an advertising agency believes there is a relationship between the number of contacts and the amount of the sales. To verify this belief, the following data was collected: For each sales contact a particular person makes, the amount of sales is expected to: Select one: a. Decrease by 2.195 thousand units b. Increase by 2.195 thousand units c. Decrease by 12.201 thousand units d. Increase by 12.201 thousand units
Detailed Report : 1. Discuss agency relationship, agency problems and agency cost in an organisation 2....
Detailed Report : 1. Discuss agency relationship, agency problems and agency cost in an organisation 2. Discuss the possible solution to the agency problems faced with organisation
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT