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

Marginal weighting system, uses and limitations of the marginal weighting s...

uses and limitations of the marginal weighting system

What are ratios of chromex plc, Ratios A great number of ratios might b...

Ratios A great number of ratios might be appropriate for this purpose depending on the specific kind of financial performance which is being compared. Amongst those appropriate

Explain the concept of newsworthiness in the field of pr, Question 1: (...

Question 1: (a). A big multinational company wishes to employ a PR manager for all its PR activities. What according to you would be the advantages and disadvantages of having

Explain about pay back method, Q. Explain about Pay Back Method? Pay Ba...

Q. Explain about Pay Back Method? Pay Back Method (PB) :- The payback process is the simplest method. This method computed the number of years required to pay back the original

Explain safe harbour rule, Q. Explain Safe Harbour Rule? Safe Harbour R...

Q. Explain Safe Harbour Rule? Safe Harbour Rule - Concept in statutes and regulations whereby a person who meets listed requirements would be preserved from adverse legal actio

Explain in detail about the cost of capital, Explain in detail about the Co...

Explain in detail about the Cost of Capital Every type of capital used by the firm (preference shares, debt and equity) must be incorporated into the cost of capital, with rela

Short-term finnce, briefly discuss the three approaches to the short-term f...

briefly discuss the three approaches to the short-term financing problems and examples of each

Determine the term- investment decision, Determine the term- Investment dec...

Determine the term- Investment decision Investment decision is broadly concerned with asset-mix or composition of the assets of a firm. Concern of the financing decision is wit

What is fv of a single present cash flow, Q. What is FV of a Single Present...

Q. What is FV of a Single Present Cash Flow? the future value of a single cash flow is defined in term of equation as follows: FV = PV (1 + r)n Where, FV = Future value PV = Pr

Future value of an annuity, Will you please give the defination of "Future ...

Will you please give the defination of "Future Value Of An Annuity"?

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