if the creditors are not paid in time.
conflicts between a shareholders goals ana a managers goal may arise when the shareholder decides to by-pass the principle of agency theory which states that the mangers and shareholders should have equal rights of financial decision making unless one via the other is made to be clearly resolved through devastating financial effects. the conflict from here then oon arises.
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The primary reason for the divergence of objectives between managers and shareholders has been attributed to separation of ownership (shareholders) and control (management) in corporations. As a consequence, agency problems, or principal-agent conflicts exist in the firm.
Agency theory is a theory explaining the relationship between principals, such as a shareholders, and agents, such as a company's executives. In this relationship the principal delegates or hires an agent to perform work. The theory attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict (agency problem), and second, that the principal and agent reconcile different tolerances for risk.
agency
Shareholders
The agency problem arises when the interests of the principals (shareholders) of a corporation may not align with those of the agents (managers) running the company. Managers may prioritize their own interests over those of shareholders, potentially leading to agency costs such as managerial entrenchment or excessive executive compensation. Shareholders often rely on mechanisms like board oversight and incentive alignment to mitigate this agency problem and align the interests of both parties.
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.
A corporation's board of directors are not agents of a corporation while corporate officers are. Although individual directors resemble agents in the sense that they owe a fiduciary duty of loyalty to the entity they serve, the distinguishing difference is that they are generally not subject to another's control, are elected by stockholders for set terms and are entitled to use their own business judgment in managing the corporation's affairs. See Restatement (Second) of Agency § 14C. As noted in Restatement (Third) of Agency § 1.01 cmt. f(2), directors' powers originate as the legal consequence of their election and are not conferred or delegated by shareholders.
Agency theory in corporate governance is a framework that looks at the relationship between principals (shareholders) and agents (management) in a company. It seeks to understand how conflicts of interest arise between these two groups and how they can be mitigated through mechanisms such as executive compensation, board oversight, and monitoring. The theory highlights the importance of aligning the interests of managers with those of shareholders to promote accountability and maximize firm value.
Linking managerial compensation to shareholder performance aligns the interests of managers with those of shareholders, as managers are incentivized to maximize the company's value. This reduces the agency problem by promoting accountability, as managers are rewarded for making decisions that benefit shareholders. Additionally, performance-based incentives can motivate managers to focus on long-term growth and profitability, further aligning their goals with those of the shareholders. Overall, this linkage fosters a cooperative relationship that mitigates conflicts of interest.
The Federal government agency that regulates everything to do with shareholders and stocks is called the Securities and Exchange Commission. The Securities and Exchange Commission is made up of appointed officials.