Question

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?

Answer 1

Hey there since there are multiple question the solution to the first question is as follows:

1)Corporate governance involves relation between varios participants.Agency problem arises from the fact that the owners of the coporation ie the shareholders and the managers of the corporation ie; the agents of the shareholders are different people.Both the concerns of sharholders and managers are different from their point of views.The managers are concerned with what will benefit them from leading to increased salaries, bonuses,power and prestige,whereas the shareholders priorities lies with seeing the value of their investments in the corporation increase.This will resukt in conflict of interest with one another because what benefits the managers may not benefit the shareholders.Corporate governance helps in reducing this conflict of interest by specifying the distribution of rights and responsibilities and bring about congruence between the goals of shareholders and agents.

One Example

Management compensation policies that tie managers bonuses to stock prices increases can lead to actions on the part of managemnt that will cause stock price to increase and thus be good for all shareholders.However if the managers try to conceal poor financial performance in an effort to keep the stock price going p so their own bonuses remain intact,those same incentives can lead to fraudlent financial reporting,which obviously is not good for the shareholders or any other stakeholders

Hope this helps