Question
In: Finance
provide an of The conflicts between shareholders and Managers
provide an of The conflicts between shareholders and Managers
Solutions
Expert Solution
The conflicts between shareholders and managers exist because of the agency conflict. Shareholders of a corporation are owners (or principals) who appoint managers as their agents to run the day to day affairs of the company on their behalf. Thus the shareholders are the principals and the managers are agents.
The agency conflict between shareholders and managers exist due to their different interests. The shareholders are primarily interested in profit maximization and maximization of returns. On the other hand the managers want to make more money in the form of wages, salaries and benefits that the company pays them. Now the more money the managers make in the form of their compensation the lower will the net profit amount for the company. This leads to a conflict.
The conflict, as mentioned above, gives rise to agency costs for the company. Due to the conflict mentioned above the management team may be more willing to take on higher levels of risk. On the other hand shareholders will not be willing to take risks beyond an acceptable level as they are largely risk averse. This again leads to a conflict.
jeff jeffy answered 1 year agoRelated Solutions
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...
Which of the following statements is correct? a. Conflicts can exist between stockholders and managers, but...
Which of the following statements is correct?
a. Conflicts can exist between stockholders and managers, but
potential conflicts are reduced by the possibility of hostile
takeovers.
b. Most business in the U.S. is conducted by corporations, and
corporations’ popularity results primarily from their favorable tax
treatment.
c.The good goal for a firm’s management is the maximization of
expected net income.
d. corporation have an advantage over proprietorships because a
sole proprietor is exposed to unlimited liability, but the
liability of...
Agency costs arising from the conflicts of interest between shareholders and bondholders do not impose any...
Agency costs arising from the conflicts of interest between
shareholders and bondholders do not impose any real costs on the
firm. Do you agree with this statement? Explain how shareholders
can take wealth from bondholders through their investment,
financing and dividend decisions. How can bondholders protect
themselves? An article in an Asian business magazine argued that
equity was cheaper than debt, because dividend yields are much
lower than interest rates on debt. Do you agree with this
statement? Please explain...
Learning Objective: Identify the potential conflicts that arise within the firm between stockholders and managers and...
Learning Objective:
Identify the potential conflicts that arise within the firm
between stockholders and managers and between stockholders and
bondholders, and discuss the techniques that firms can use to
mitigate these potential conflicts.
Topic:
A well-run company should align the management’s interest and
with the owner’s interests.
What are some actions that stockholders can take to ensure that
management’s and stockholders’ interests are aligned? Is this
important? What are some of the risks/consequences if the
management’s interests are not aligned...
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 ?
“It is impossible to arrange the ‘perfect contract', between managers (agents) and shareholders of a business...
“It is impossible to arrange the ‘perfect contract', between
managers (agents) and shareholders of a business because decisions
by the managers (agents) affect their own personal interests as
well as the interests of the owners. Managers will give priority to
their personal interests over those of the shareholders”. With
reference to the agency theory, discuss this perceived conflict of
interests.
“It is important to align shareholders’ incentives with those of the managers. Otherwise, the managers will...
“It is important to align shareholders’ incentives with those of
the managers. Otherwise, the managers will not work hard and they
will not take risks. To do this, managers must be given lots of
call options. The more call options managers get, the greater will
be the alignment of their incentives with those of shareholders.
Moreover, to increase the incentive effects, the call options must
be non-tradable, they must be in the money (exercise price must be
less than the...
“It is important to align shareholders’ incentives with those of the managers. Otherwise, the managers will...
“It is important to align shareholders’ incentives with those of
the managers. Otherwise, the managers will not work hard and they
will not take risks. To do this, managers must be given lots of
call options. The more call options managers get, the greater will
be the alignment of their incentives with those of shareholders.
Moreover, to increase the incentive effects, the call options must
be non-tradable, they must be in the money (exercise price must be
less than the...
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?
Please explain the agency problem between shareholders and managers in corporate finance and how compensation plan,...
Please explain the agency problem between shareholders and
managers in corporate finance and how compensation plan, board of
directors and takeovers can possibly mitigate the problem.
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