Name * Rai han Chowdhury Rot: Biwo AOU UL Dwhy agency costs arises? whet ane the types OF 2grrr costs 2 @ Reasons sox Aisserences in shareholder and managers Incentives regareding. Sirem policies represent « muabar OF specisie problems ”_ What atce those prollens? Explain in details, @ why might managers inteness dissen som these OF shareholders? what can shanehoblars ap to Ensure that hey do not susserc Zinanerally becobse managers Interests disse Sreom Were Own? ® “Positive accounting theory has geen enitisised by Many” Dutline The crerticrsn, and comment oF then validrty | Ans. to the. Q_No:0 First we have to Know aboot agency theeny In oteler +0 Know why ageney costs arises. Tn a Sim orc company tHe owner might not mange everthing , he/she appoints agents orm managercs to mange we Sirem. The interes? between this managener g shareholder /debt holder ean be Aiszerent.Se Olewdhory When Yue \lenesd each oOrtkerc Peurtles Os agent Pcie dsseres SOM SIEM COSTS aise 45 both Yteresd are nod aligned, the Sirem wilt nop able to Maximire their value. his give anise to Various atecy COSIS which ate to Imevreted in onder Nan the interes 65 boll parties, Tres 05 ageney eos O Monitoring Cost s Monitoring cost ig related — 4 SS": to Moni tore the Activities OF agent , This 1S Sinstly taken actually cost UPON by the management bot boatn by te agents. Monitoring cost, Can be imeneagedL by producing Financia] statements On Insonmation various time , auditors eost ete, These costs eve tuelly assect fhe Remuneration OS the agent ® Resiloa| Bonting cost : io bonking cost. Gonding co5t is alse boarn tHe Another. Cost oF ageney by agent. Bonding Cost 1S incurned jn onder to align the interest of both parties by alving agents various dacilittes and bonus ete.» Qaihan . ; is @ Besidual loss 2 Residual less 15 jneurire ed cateally im orelert 4° the agent works oppotunist es 7 ' 4 happens mayimize his/her own preos th, Lt BAP when phere 75 dAissercence 0% inderce St 8 ; + the preocedurces to aligh intercests are Ne succes $$ ull. agenty @ost. “These arte the Ans. to Hee. Q NOL OR to Hes ane chosen On s@lecfel by A principles, The dipyercence] Incentives regarding Firm policies management In sharehelderc amd hanegercs Sirm policies teepreesent a, numberc oF problems , Sharehollerc will aleays choose the policies which will inenease the value oF Me siren. Whiel eventuall maximize the prosit of the shareholder, On the other side management will cheese policies which wil maximize thelre On prog is the jmtenest OF both parties do notAlign, TH the managere works opporttunisticly he/se wil biting Suture prosits 40 curmcent yeare in order qo get more bonuses Use polreies This . Management will which will help only their prcofits. situation jl erxeate. A Rong perception OF the company fowertds new investorts , Also he welth oF debt holdere will to tHe Mann gement, This will os debt, be teas sertned agssect the equity— Sittin: . Ang.to The QNO: 02 ; Mancigeres oad shareholders must have sini lar Interest. Orkeaise 1 will bring merce cost 4 enentually loss 04 cueal th JS dhe environment of the girem is suitable SOse Opportunistic behavior then surcely nangeens evill werk Only sore Yhe sels Mndenest, Also is Ss med penalty gore manipulating. the gor thetre there Tnsoremetion orc Wing polices personal gain then agent wih net work Sore gue Inerease of the valve OF the Sir, here must be monitoring spstems which evil Indieate the divercgent behavior of Me ayents, Without proper monitoring srstem 4 sean oF penalty divergence oF agent will happen, Tn orderr to stop this thene must be moniforing Srstems and also pemunettation, bonuses sore agents which wih make fen more Jatenecheg——_— in cwortking Im Yee imteneet as shareboblers. sharchollers have fo take measurce fo make Sune ted Riveregence oF agent does Mot make sinaneial losses, That is tuhy they use vaniou methods oe of which is Zprice protection”, Th Price. protection * Price protection is also elated to the agent salaries, reemunercations, Share holdere ore principles pars eeretain salanics Vy onder 4o eblain services, Also to énaounage them to work there ane nemunercations. TS the prineiples see yhene is divergence of ageut and monitoring must be done, then this will AFFeet mangers salaries , bon uses , shanes ete, Principles till rake measures to eempensate bp tedveing the Sealany F salicttities This Sear os reduction will make the manager aonk in te Indenes# os strom, Fh covenents ? Phere can be various covenents to stop loosing wealth, This covenerts aneUsed Yo make sure that shourehollere does not Face Finanelal losses. Ans te the.Q No:oh. Positive accounting theerty has be eritictser by many . Though it has seen various chages ark imprtevements, DTkhe main ereiticism it gets the Penrice Accounting Yheory Uses variables which are tncsignisicand @O The predictive power oF the models cue few | Cross seretona| models has low predictive Power, © Many Says that the positive pees el Theory mainly socuses ou behavior OF he Ysere hot on the policies,