Solution to shareholders versus managers conflict, Financial Management

Assignment Help:

Solutions to this Conflict

In common, to make sure that managers act to the best interest of shareholders, the firm will:

(a) Acquire Agency Costs in the form of:

  • Monitoring expenditures like audit fee;
  • Expenditures to structure the organization therefore the possibility of undesirable management behaviour would be restricted.
  • Opportunity cost related with loss of profitable opportunities resultant from structure not permits manager to take action on a timely basis as would be the situation when manager were also owners. This is the cost of delaying choice.

 

(b) The Shareholder might offer the management profit-based remuneration. This remuneration comprises:

  • An offer of shares therefore managers become owners.
  • Share options: (Option to purchase shares at a fixed price at future date).
  • Profit-based salaries example, bonus

 

(c) Threat of firing:

Shareholders have the power to assign and dismiss managers that is exercised at every Annual General Meeting (AGM). The threat of firing hence motivates managers to make good judgments.

(d) Threat of Acquisition or Takeover:

When managers do not make good decisions then the value of the company would reduce making it easier to be obtained especially when the predator (acquiring) company beliefs that the firm can be twisted round.


Related Discussions:- Solution to shareholders versus managers conflict

Explain the random walk model for exchange rate forecasting, Explain the ra...

Explain the random walk model for exchange rate forecasting. Can it be consistent along with the technical analysis? Answer:  The random walk model assumes that the current excha

How do risk-averse investors compensate for risk, How do risk-averse invest...

How do risk-averse investors compensate for risk when they take on investment projects? Due to the risk aversion, people demand higher rates of return for taking on higher-risk p

Relationship b/w bond''s market price and yield to maturity, What is the re...

What is the relationship between a bond's market price and its promised yield to maturity?  Explain. A bond's market price reckon on its yield to maturity (YTM).  When a bond h

Demerits of pay back method, Demerits of Pay Back Method:- (i) It ignor...

Demerits of Pay Back Method:- (i) It ignores the Cash Flows after the Pay Back Period: - The main shortcoming of this method is that it completely ignores all cash inflows subs

Important features floating rate notes, Reference Index Every FRN choos...

Reference Index Every FRN chooses its own reference index upon which the calculation of each successive new coupon is based. The most commonly used reference index is LIBOR. It

Valuing an option-free bond, To value an option-free bond, we must de...

To value an option-free bond, we must determine the on-the-run yield curve for the particular issuer whose bond we have to value. This on-the-run yield curve used

Frankfurt stock exchange, Frankfurt Stock Exchange The roots of the Fran...

Frankfurt Stock Exchange The roots of the Frankfurt Stock Exchange may be traced back to the period of medieval fairs. As early as the middle of the ninth century, Emperor Ludwi

Describes net operating income approach to capital structure, Q. Describes ...

Q. Describes Net Operating Income Approach to Capital Structure? NOI (Net Operating Income Approach):- This is another speculation of capital structure which is propounded by '

Briefly explain tagna, TAGNA (a) Market effectiveness is commonly discu...

TAGNA (a) Market effectiveness is commonly discussed in terms of pricing efficiency. A stock market is expressed as efficient when share prices fully and fairly reflect relevan

Function of stock market, Functions of a Stock Exchange The stock excha...

Functions of a Stock Exchange The stock exchange is a market place where investors trade in securities. It is a competitive market involving large numbers of buyers and sellers

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd