FINANCIAL MANAGEMENT

AGENCY PROBLEM
WHAT IS AGENCY PROBLEM?
 A Company from of organization is characterized by
separation of ownership and management.

 Management gets considerable autonomy in its functioning

because of widely-diffused ownership, scatted and ill-
organized shareholders.

 Thus, management gets a chance to promote its own interests

in such a scenario.

 However, the shareholders have a right to dismiss the

management, so management aim at satisfying instead of
maximizing shareholders’ wealth.
 Thus, there is a conflict of interests in
management’s personal goals and shareholders’
wealth maximization goal.

 Because of considerable autonomy, there is a

chance that management may pursue their own
goals instead of shareholders’ goals.

 Thus, Agency problem is the likelihood that

managers may place personal goals ahead of
corporate goals/ shareholders’ wealth.
HOW TO RESOLVE AGENCY
PROBLEM

2 WAYS

MARKET FORCES AGENCY COSTS

BEHAVIOUR OF
1.MONITORING
SECURITY HOSTILE 2.BONDING
MARKET TAKEOVER 3.OPPORTUNITY
PARTICIPANTS 4.STRUCTURING
EMERGING ROLE OF FINANCE
MANAGER IN INDIA
FINANCE MANAGER : IS
PERSON WHO TAKES CARE OF
ALL THE FINANCIAL
ACTIVITIES OF THE BUSINESS
ORGANIZATION.

Qualities of a financial manager :-

1. Leadership ( Good Motivator )

2. Problem Solving
3. Communication
4. Supervisory skills
RESPONSIBILITIES OF FINANCE
MANAGER
1. Financial Planning and Forecasting (future
financial needs)

2. Acquisition of Funds (identify best sources of

finance)

3. Investment of Funds (proper utilization of funds)

4. Assist in Valuation Decisions (valuation of firms

assets)

5. Working Capital Management (meeting day to

day expenses)
CHALLENGES FACED BY FINANCE
MANAGERS

Legal Technological
Obligations Advancements

Risk Globalizat
Management ion
THANK YOU