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

Calculate debt or equity ratio, Calculate Debt or Equity Ratio XYZ LI...

Calculate Debt or Equity Ratio XYZ LIMITED Key data related to XYZ for last three years is as follows:   2011/12 2010/12

Measurement of interest rate risk, Changes in the bond value is inversely ...

Changes in the bond value is inversely related to the change in the interest rates. If an investor holds a long bond position, he would incur loss if the in

CVP analysis, What is the meaning of Breakeven point?

What is the meaning of Breakeven point?

Simple average of the outcomes - time constraint, 1. Your welfare depends o...

1. Your welfare depends on how much time you travel T and how much time you play P and is the product of the two, i.e.,  W = T * P (a) The total amount of time you have is 10 ho

Standard communication protocol used for the internet, Question: (a) W...

Question: (a) What is a computer virus? List and explain the different type of computer viruses? (b) List 4 steps which you can use to minimize the chances of being infec

Calculate the net present value-investment proposal, As you checked the Ans...

As you checked the Answer Key to Question 6 in the Mastery Check from this lesson you may have noted that each year's net cash flows are calculated by adding depreciation back to n

Dividend yield plus growth in dividend method, Dividend yield plus growth i...

Dividend yield plus growth in dividend method When the dividends of the firm are predictable to grow at a constant rate and the dividend payout ratio is constant, this techniq

Explain that the u.s. imports more than it exports, Comment on the subseque...

Comment on the subsequent statement: “Since the U.S. imports more than it exports, it is essential for the U.S. to import capital from foreign countries to finance its current acco

Agency Problem, What is the potential of having agency problems

What is the potential of having agency problems

Financial accounting, Financial accounting: Financial accounting attemp...

Financial accounting: Financial accounting attempts to establish the value of a particular organisation at a specific point in time, and its earnings over a specified period of

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