Solution to shareholders versus managers conflict, Financial Management

Solutions to this Conflict

In common, to make sure that managers act to the best interest of shareholders, the firm will:

(a) Acquire Agency Costs in the form of:

  • Monitoring expenditures like audit fee;
  • Expenditures to structure the organization therefore the possibility of undesirable management behaviour would be restricted.
  • Opportunity cost related with loss of profitable opportunities resultant from structure not permits manager to take action on a timely basis as would be the situation when manager were also owners. This is the cost of delaying choice.

 

(b) The Shareholder might offer the management profit-based remuneration. This remuneration comprises:

  • An offer of shares therefore managers become owners.
  • Share options: (Option to purchase shares at a fixed price at future date).
  • Profit-based salaries example, bonus

 

(c) Threat of firing:

Shareholders have the power to assign and dismiss managers that is exercised at every Annual General Meeting (AGM). The threat of firing hence motivates managers to make good judgments.

(d) Threat of Acquisition or Takeover:

When managers do not make good decisions then the value of the company would reduce making it easier to be obtained especially when the predator (acquiring) company beliefs that the firm can be twisted round.

Posted Date: 12/8/2012 6:56:42 AM | Location : United States







Related Discussions:- Solution to shareholders versus managers conflict, Assignment Help, Ask Question on Solution to shareholders versus managers conflict, Get Answer, Expert's Help, Solution to shareholders versus managers conflict Discussions

Write discussion on Solution to shareholders versus managers conflict
Your posts are moderated
Related Questions
Q. Explain Safe Harbour Rule? Safe Harbour Rule - Concept in statutes and regulations whereby a person who meets listed requirements would be preserved from adverse legal actio

cost of capital, Financial Management The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equ

Explain about the investment decision- financial management The investment decision relates to selection of assets in which funds would be invested by a firm. Assets which can

A floater where the coupon rate is computed as a fraction of the reference rate plus a quoted margin, are known as a de-leveraged floater. The general formula for this

The treasury auction cycle constitutes weekly auctions in case of 3-month and 6-month bills and auction for every fourth week in case of yearly bills. These are f

What is Performance ratios ROCE Return oncapital employed (ROCE)= (Profit before interest and tax (PBIT) / Capital employed) * 100% ROCE measures profitability and illu

Q. Scope of the content of the finance function? 1) Estimating of the finance requirement: the first task of a finance manager is to estimate and short terms and long terms fin

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

Consolidations of Merger - amalgamation A consolidation is a combination of two or more companies into a new company. In this form of merger all the existing companies which co

What is the difference between pro forma financial statements and a cash budget?  Explain why pro forma financial statements are not used to forecast cash needs. Pro forma