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Outline how an agency problem can interfere with the implementation of the goal of shareholder wealth of maximization
The agency problem is a result of the separation between the decision makers and the owners of the firm. As a result managers may make decisions that are not in line with the goal of maximization of shareholder wealth.
A firm's operating goal should be to maximize shareholder wealth as it is shareholders who are the owners of the firm. Profit maximizing however is more of a personal/management oriented type goal as it only benefits those running the company. This problem is known as the Agency issue, and it is directly related to the asymmetry of information problem that all firms suffer from. Typically, higher ranking persons in a company, usually managers, know a lot more about the firms operations than do subordinates and common stock holders; this information may be exploited so that only profits and managements' personal pay packets are maximized, and shareholders who funded the firms operations by their purchase of ordinary equity benefit none as they experience no gain through increase in share value. In order to overcome this issue, several things can be done. For example, monitoring techniques can be put in place to ensure management is acting in shareholder interest and not their own, or alternatively, management pay packets can be directly linked to the goal of maximizing shareholder wealth. If and when this goal is achieved and shareholders realize gains, management may be paid a cash bonus or an allotment of shares. Put simply, shareholder wealth maximization should be the firms operating goal simply because they are financing the firms operations with their investing in the firm; to act against their interests is unethical, but still not unheard of.
The problem of agency theory are pricniple and agent.
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Outline how an agency problem can interfere with the implementation of the goal of shareholder wealth of maximization
The agency problem is a result of the separation between the decision makers and the owners of the firm. As a result managers may make decisions that are not in line with the goal of maximization of shareholder wealth.
A firm's operating goal should be to maximize shareholder wealth as it is shareholders who are the owners of the firm. Profit maximizing however is more of a personal/management oriented type goal as it only benefits those running the company. This problem is known as the Agency issue, and it is directly related to the asymmetry of information problem that all firms suffer from. Typically, higher ranking persons in a company, usually managers, know a lot more about the firms operations than do subordinates and common stock holders; this information may be exploited so that only profits and managements' personal pay packets are maximized, and shareholders who funded the firms operations by their purchase of ordinary equity benefit none as they experience no gain through increase in share value. In order to overcome this issue, several things can be done. For example, monitoring techniques can be put in place to ensure management is acting in shareholder interest and not their own, or alternatively, management pay packets can be directly linked to the goal of maximizing shareholder wealth. If and when this goal is achieved and shareholders realize gains, management may be paid a cash bonus or an allotment of shares. Put simply, shareholder wealth maximization should be the firms operating goal simply because they are financing the firms operations with their investing in the firm; to act against their interests is unethical, but still not unheard of.
what is an agency problem
An example of agency theory is when a company hires a CEO to run the business on behalf of shareholders. The CEO is the agent tasked with making decisions in the best interests of the principals (shareholders), but conflicts of interest may arise if the CEO prioritizes personal gain over shareholder wealth maximization.
The problem of agency theory are pricniple and agent.
its a good agency the only problem is you have to pay 800 dollars
Shareholders
Agency theory helps to align the interests of principals (shareholders) and agents (managers) by providing incentives for the agent to act in the best interest of the principal. Through mechanisms such as performance-based compensation and monitoring, agency theory aims to reduce agency conflicts and ensure that managers make decisions that maximize shareholder value. Additionally, agency theory provides a framework for understanding the relationships and responsibilities between principals and agents in a business setting.
Well, we hope that the Environmental Protection Agency (EPA) is working on that problem.
The agency problem is a conflict of interest inherent in any relationship where one party is expected to act in another's best interests. In corporate finance, the agency problem usually refers to a conflict of interest between a company's management and the company's stockholders.
Yes, a citizen is able to sue a municipal agency. Some municipal agencies, however, do put wording into contracts (e.g., property tax bills) that one will agree to settle a problem with an arbitrator or mediator, taking away the right of the individual to bring suit against the agency. In general, one should try to work with the agency to solve the problem and document every step taken. If, after all efforts to work with the agency to settle the problem have been exhausted (and the problem remains unsolved) a lawsuit may be considered.