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Posted: December 11th, 2024
This week, we will examine agency theory in a corporate finance context. The corporate form of organization is established such that a management team is selected by the board which in turn is elected by the shareholders through a voting process. The voting process will most commonly be established as one vote for each share held. In a smaller organization, the managers may also hold the board positions as well as all or most of the shares. When companies grow to capture the benefits of economies of scale, selling shares to external owners become necessary, thus, creating a more clear division between ownership and control.
This division between managers and outside owners creates the possibility for conflicts in objectives. Left unmonitored, the managers may operate in such a way as to maximize their utility which could include the consumption of various perquisites, such as extended vacations. Outside owners, on the other hand, have a simple objective function, to maximize their wealth. There are several methods for corporations to be set-up to motivate or monitor managers to operate in the best interests of these outside owners. One of the most fundamental ways is through the board of directors who appoint the management team. The outside owners can influence that board monitoring with the voting rights that the owners hold for electing the board. Optionally, the corporation can establish compensation structure to move the managers’ objective functions closer to that of the outside owners.
Assignment
Write a word essay – Evaluate the responsibilities of shareholders who have different types of objectives within the corporation, such as company managers and owners who have little daily involvement in the corporation.
Then, write an analysis that includes the following:
• Write a word essay – Evaluate the nature of an agency’s relationship problem within a corporate form of an organization.
• Discuss corporate agency conflicts that emerge that require monitoring.
• Discuss the influence of the board of directors in such a process.
• Examine how managerial ownership may resolve the agency problem within a corporate form of organization.
• Discuss how compensation structures could serve to control agency costs and provide evidence related to this method.
• Discuss how institutional ownership can play an effective monitoring role within the corporate form of organization.
• Assess which methods seem to constitute the “best” form of monitoring.
• Discuss the related academic evidence to support your position.
Support your paper with at least four resources. In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included. Length: 5-7 pages, not including title and reference pages
Resources:
• Chung, K. H., & Zhang, H. (2011). Corporate governance and institutional ownership
• Filatotchev, I., & Nakajima, C. (2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay). Corporate governance, responsible managerial behavior, and corporate social responsibility: Organizational Efficiency Versus Organizational Legitamacy?
• Kara, E., Erdur, D., & Karabiyik, L. (2015 – Research Paper Writing Help Service). Effects of corporate governance level on the financial performance of companies: A Research on BIST Corporate Governance Index (XKURY).
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