Scribd Logo
Upload

Welcome to Scribd!

  • Agency Problems and Accountability of Corporate Managers and Stockholders

    Uploaded by

    Marie Mallare Cortez
    34 views16 pages
    The document discusses agency problems that can occur between corporate managers and stockholders. It explains that managers may act in their own self-interest rather than to maximize stockholder value. It also outlines some of the conflicts of interest that can arise in the principal-agent relationship and mechanisms used by stockholders to help mitigate these issues like proxy voting and derivative suits.

    Original Description:

    Good Governance And Social Responsibility

    Original Title

    Untitled 1

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The document discusses agency problems that can occur between corporate managers and stockholders. It explains that managers may act in their own self-interest rather than to maximize stockholder value. It also outlines some of the conflicts of interest that can arise in the principal-agent relationship and mechanisms used by stockholders to help mitigate these issues like proxy voting and derivative suits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    34 views16 pages

    Agency Problems and Accountability of Corporate Managers and Stockholders

    Uploaded by

    Marie Mallare Cortez
    The document discusses agency problems that can occur between corporate managers and stockholders. It explains that managers may act in their own self-interest rather than to maximize stockholder value. It also outlines some of the conflicts of interest that can arise in the principal-agent relationship and mechanisms used by stockholders to help mitigate these issues like proxy voting and derivative suits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 16

    AGENCY PROBLEMS AND

    ACCOUNTABILITY OF
    CORPORATE MANAGERS
    AND STOCKHOLDERS
    Chapter 5

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 1 of 16
    AGENCY PROBLEM

    Managers, acting as agents for stockholders, may act in


    their own interest rather than maximizing value.

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 2 of 16
    WHEN DOES AGENCY PROBLEMS OCCUR?

    When the interest of stockholders, the board of


    directors/or the management of the company are not
    perfectly aligned or when these entities conflict.

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 3 of 16
    STOCKHOLDERS’
    SELF-INTEREST
    INTEREST

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 4 of 16
    WHAT'S
    WRONG?

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 5 of 16
    PRINCIPAL-AGENT RELATIONSHIP

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 6 of 16
    PRINCIPAL-AGENT SPECIFIC ISSUES

    •Diversification vs. Dividends


    •Managerial Opportunism
    •Power Supremacy vs. Technical expertise
    •Trust

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 7 of 16
    “ MEN OFTEN OPPOSE A THING MERELY BECAUSE
    THEY HAVE HAD NO AGENCY IN PLANNING IT, OR
    BECAUSE IT MAY HAVE BEEN PLANNED BY THOSE
    WHOM THEY DISLIKE

    - Alexander Hamilton ”
    IDENTIFIED AGENCY PROBLEMS

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 8 of 16
    ADVERSE SELECTION

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 9 of 16
    EXAMPLES OF ADVERSE SELECTION

    •LABOR MARKETS
    • Job applicants most often apply for jobs above their qualifications
    and seldom below.

    • CREDIT CARDS
    • Some people do not pay their bills; therefore, those that do are
    charged for the losses.

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 10 of 16
    AGENCY COST
    • Costs incurred by shareholders to minimize agency problems
    Examples:
    • Management incentives
    • Monitor performance
    • Owners protection
    • Complex organization structures

    • Recent trend: flatter organizational structures have emerged to reduce


    costs.

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 11 of 16
    CONFLICT OF INTEREST

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 12 of 16
    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM
    Page 13 of 16
    REMEDIES WITHIN SHAREHOLDERS

    PROXY VOTING DERIVATIVE SUIT TAKEOVER


    Benefits of Proxy • Specific Feature • Friendly takeover
    Voting: • Process • Hostile takeover
    • Routine decisions • Reverse takeover
    • Governance • Tender takeover
    • Issues on anti-takeover

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 14 of 16
    EXTERNAL FACTORS AFFECTING
    GOVERNANCE
    • Competitors
    • Financiers
    • Regulatory Agencies
    • Watchdogs
    • Predator Companies
    • Investment Bankers- an individual or entity which act as an agent for
    corporation issuing securities.

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 15 of 16
    END

    https://cdn.fbsbx.com/v/t59.2708-21/53320883_345489762751743_1437243829886…nc_ht=cdn.fbsbx.com&oh=28d9f239b783824c42ce68fd16261d9a&oe=5CA5C8F1&dl=1 02/04/2019, 10H30 PM


    Page 16 of 16

    You might also like