Reference no: EM13194771 , Length: 2000 words

Q1.   

a) Define agency problem, explaining two types of agency costs.

b) Comment on the following quote:

"... agency problems do  not mean that the corporate firm will not act in the best interest of shareholders, only that is costly to make it do so. However, agency problems can never be perfectly solved ..."

Q2. How important is good governance and ethics for a firm? Provide answers with examples and theoretical explanations.

Q3.

Critically examine the following quote:

 ""...the agency costs of [controlling minority shareholders] CMSs are increasing the larger the potential for private benefits extraction. This suggests that, in many countries around the world, the main agency problem is between CMSs and non-controlling shareholders rather than between managers and small, dispersed shareholders."  Cronqvist and Nilsson (2003), pp. 696.

In addition to the cited references, students are strongly urged to read reviewed journal articles including Jensen, M.C. and Meckling, W. H. (1976). Theory of the firm: managerial behaviour, agency cost and ownership structure. Journal of Financial Economics, 3 (4) pp. 305-360. Please note: understanding the notions in the articles is more important than an entanglement with the advance math in many of the articles.