The shareholders jointly own the corporation.
The process in which the owners take decisions and the financial managers of the company act on behalf of the owners in order to create wealth for the shareholders describes the way in which the owners control the firm’s management.
Agency relationship exists because the financial managers are the agents of the shareholders and the shareholders or owners are the principal. Hence there is a principal -agent relationship between the financial managers and the shareholders.
There can be a problem when the financial managers of the corporation act for their own benefit rather than the benefit of the shareholders. There may be project that may not be profitable for the shareholders, but the financial managers may want o pursue it for for getting a pay raise. So this can cause a conflict in the agent-principal relationship.
DESCRIBE THE NATURE OF THE PRINCIPAL-AGENT RELATIONSHIP BETWEEN THE OWNERS AND MANAGERS OF A CORPORATION, AND...
Question 12 For corporations, the principal-agent relationship usually refers to the relationship between O buyers-sellers O owners-managers O manager-customer O owner-bankers
The principal-agent problem of ownership versus control of the corporation arises when owners and managers Select one: a. are the same people. b. pursue objectives that differ from those their customers wish them to pursue. c. pursue objectives that differ from those their workers wish them to pursue. d. pursue objectives that differ from those the government wishes them to pursue. e. pursue different objectives.
Agency is a legal term of art that refers to the relationship between a principal and an agent. An agency relationship is a fiduciary relationship, where one person (called the “principal”) allows an agent to act on his or her behalf. The agent is subject to the principal’s control and must consent to her instructions. Classic examples of agency relationships include employer/employee, lawyer/client, and corporation/officer. All that is required to create an agency relationship is the manifestation of assent by...
1. AGENCY PROBLEMS Who owns a corporation? Describe the process whereby the owners control the firm’s management. Describe the main reason why an agency relationship exists in the corporate form of organization. In this context, describe the types of problems that can arise. 2. ENTERPRISE VALUE A firm’s enterprise value is equal to the market value of its debt and equity, less the firm’s holdings of cash and cash equivalents. This figure is particularly of interest to potential purchasers of...
Explain several dimensions of the shareholder-principal conflict with manager-agents known as the principle-agent problem. To mitigate agency problems between senior executives and shareholders, should the compensation committee of the board devote more to executive salary and bonus (cash compensation) or more to long-term incentives? Why? What role does each type of pay play in motivating managers?
How can the agency problem between managers and owners be mitigated in a MNC? I. Instituting Board of directors II. Using incentive contracts III. Having debt in the firm IV. The Market for Corporate Control V. Having Diffused ownership VI. Maximizing Profit and Minimizing Costs Group of answer choices A)I, II, III, IV, VI only B)I, II, III, IV, V C)All of the options D)I, II, III, IV E)II, III, IV,
is attempt took 135 minutes. rect Question 1 How can the agency problem between managers and owners be mitigated in a MNC? 1. Instituting Board of directors 11. Using incentive contracts III. Having debt in the firm IV. The Market for Corporate Control V. Having Diffused ownership VI. Maximizing Profit and Minimizing Costs II, III, IVM CertificateOfC....pdf ^ THANTU INU....
Describe in words the nature of the relationship between each pair of variables. Give a verbal description of the way the variables are related (how are changes in one variable related to changes in the other). This should include the direction of the relationship (what does it mean if the correlation value is positive or negative) and the strength of the relationship (is there a strong or weak correlation). r = -.82 between a job applicant's age and likelihood of...
the company is de beers Describe the company's principal-agent problem; - Is your company of choice a perfect competition model? If yes, describe it. If not, explain how it differs;
Which of the following does not correctly describe the primary relationship between a corporation and a shareholder? Multiple Choice If the corporate profits are distributed as dividends, the dividends are included in the shareholder's net income for tax purposes. Profits earned by the corporation are subject to income tax that is the first level of taxation on the income. If the corporate profits are retained, the unrealized gain on share value is included in the shareholder's taxable income. The after-tax...