Question

Discuss the opportunistic agents versus managerial stewards' debate concerning corporate finance and governance and give an example of each (detailed please)

Answer 1

Opportunistic agents versus managerial stewards' debate concerning corporate finance and governance:

Agency theory states that maangers who act as agents to maximise the wealth of their principal, i.e, Company shareholders, might engage in self serving ooportunistic activities that will serve their own vested interests, but be detrimental to the owners' wealth. For example, managers having access to sensitive company information might leak the same to outsiders for some financial gains (insider trading), leading to great losses for the Company.

However, critics have said that most managers are less likely to be so self-obsessed and hence, will give more priority to theri duty, i.e taking care of the Organizational goals. Hence, it is not fair to categorize all managers as self-serving and opportunistic agents. Most managers are true stewards' of the Company owners and try their best to safeguard the shareholders' interests. Example, managers being ethical in theri conduct and only engaging in lawful activities that will ensure an increase in shareholders' wealth.

If all principals start thinking of managers as opportunistic agents and keeo them on a tight leash, then the honest stewards will also be demotivated to act according to ethics. This may lead to them engaging in self-serving activities that might be detrimental to the Company and its shareholders.