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

Working capital cycle, Q. Working capital cycle? In a manufacturing con...

Q. Working capital cycle? In a manufacturing concern the working capital cycle is start with the purchase of the raw material and ends with the realization of the cash from the

Do you agree or disagree with this statement, Companies with rapidly growin...

Companies with rapidly growing levels of sales do not need to worry about raising funds from outside the firm.  Do you agree or disagree with this statement?  Explain. Disagree

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

Return on equity, Your quantitative analysis will describe the financial st...

Your quantitative analysis will describe the financial strength of you company using the metrics we discussed in class. You may use other measures at your discretion, but the follo

Types of frns, Types of FRNs In an era of innovations, while changing n...

Types of FRNs In an era of innovations, while changing needs and preferences of the investors trigger introduction of newer FRNs, the borrowers' funding specifications also nec

Capm model and financial leverage beta , 1. Capital Asset Pricing Model an...

1. Capital Asset Pricing Model and Multinational Corporations Why do some critics say the CAPM model is not appropriate in an international setting? Please explain a way that

Profit and loss statement, Profit and Loss statement:   The Profit and L...

Profit and Loss statement:   The Profit and Loss statement is the primary measure of business performance.  As the name suggests, this particular report measure whether the b

What is sustainable growth, Does the expected value of the sales and of the...

Does the expected value of the sales and of the net income of Spanish companies have anything to do with sustainable growth? No. Sustainable growth it is just a number that sho

What is deferred incomes, Q. What is Deferred Incomes? Deferred incomes...

Q. What is Deferred Incomes? Deferred incomes are incomes received in advance before supplying goods or services. They represent funds received by a firm for which it has to su

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

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