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 the maximum amount, Determine the amounts to be recognised in pro...

Determine the amounts to be recognised in profit or loss and in other comprehensive income in respect of the property for the year ended 31 December 2010.   Evaluate the compliance

Tests in investments, Tests in Investments There are many rules that sp...

Tests in Investments There are many rules that specify how the past data of share prices can be used to obtain a clue regarding the future prices of shares. Such rules would be

Advantages and disadvantages of foreign direct investment, What are the dis...

What are the disadvantages and advantages of Foreign direct investment (FDI) like opposed to a licensing agreement with a foreign partner? Answer:  The major advantage of FDI (

Explain the flow of goods and paper work, Explain the flow of goods and pap...

Explain the flow of goods and paper work in Diagram on Page 74 Ed. 10 [P. 70  in Ed. 9] of your textbook.  Explain a.  how the transaction would work without a Letter of Credi

Case let, This case has been framed in order to test the skills in evaluati...

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer

Explain about the valuing securities, Explain about the Valuing Securities ...

Explain about the Valuing Securities Objective of any investor is to maximise expected returns from his investments, subject to various constraints, primarily risk. Return is m

Explain the definition of arbitrage, Give a full definition of arbitrage. ...

Give a full definition of arbitrage. Answer:  Arbitrage can be illustrated as the act of concurrently buying and selling the same or equivalent assets or commodities for the aim

Management accounting and financial management, Q. Distinguish between Mana...

Q. Distinguish between Management Accounting and Financial Management with clear mention of basis of differences. How does the traditional financial manager differ from the mode

Explain banks circumtances to impose compensating balances, What are compen...

What are compensating balances and why do banks require them from some customers?  Under what circumstances would banks be most likely to impose compensating balances? Compensa

Discounting technique for calculating time value of money, DISCOUNTING TECH...

DISCOUNTING TECHNIQUE is also called present value technique. It is the process of calculating the present value of cash flows.  Discounting is determining the present value of a

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