The Conflict Between Principal And Agent

Within a federal republic, such as the United States, we tend to rely on representatives to represent us as a nation rather than us representing the nation. This is due to people’s capacity of knowledge as not everyone can be the best of themselves in every area. Eventually, leading to representatives, who have the knowledge in politics and government, in representing the people of every state. This type of situation is when the people, who are the principals, gives authority to the representative, who are the agents, to represent them. By definition, the principals are those who possess authority and agents are individuals who execute the authority on behalf of the principals (Kernell 29). Although this is common, not many individuals are aware that they are entering a principal and agent relationship. In the United

The scope of this paper is to analyze the kind of agency problems that emerges between The Hershey Company and their stakeholders and shareholders. To answer this, a review of the company`s board structure and ownership structure was made. Thereafter two specific situations that has occurred in recent times was used as case examples to enlighten the agency problems suggested to emerge by the corporate structure.

In this situation, the manager will try to increase profits as much as possible, meaning they may: • Select accounting methods that maximise profit instead of ones that better reflect the firm’s current position such as using a different depreciation method, accelerating revenue recognition or changing the level of depreciation. Try to manipulate accounting figures. Adopting a short-term focus instead of a long-term one. In this perspective, PAT is siding towards regulation. The Agency Costs of Equity One part of residual agency problems is the agency cost of equity. This is because managers’ shirking (they become less productive because they see no need to work for no extra pay) and conflicts with outside equity interests reduce the value of the firm. To minimise this, monitoring and bonding costs are required to implement measures to minimise its detrimental effect on the value of the firm. It must be noted that no firm will completely eliminate this as costs will increase exponentially as one tries to eradicate more and more. Thus, there is an optimal trade-off point between monitoring costs and agency costs. This is where the marginal monitoring and bonding cost equals the marginal shirk. The Agency Costs of Debt Much like the agency cost of equity, there is also one from debt. This is due to the fact that managers will always try to shift wealth from debt to equity holders. Managers have their stake in the firm’s equity and

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

This situation can lead to negative consequences for a business when its executives or management direct the organization to act in the best interest of themselves instead of the best interest of its owners or shareholders. Stockholders of the enterprise can keep this problem from arises by attempting to align the interest of management with that of themselves. This normally occurs through incentive pay, stock compensation, or other similar incentive packages that now cause the managers financial success to be tied to that of the company (Garcia, Rodriguez-Sanchez, & Fdez-Valdivia, 2015; Cui, Zhao, & Tang, 2007; Bruhl, 2003; Carols & Nicholas,

This paper provides an overview of the current debate and the theories that attempt to explain executive remuneration disclosure. Attention is given to underlying accounting theories such as Positive Accounting Theory, Normative Accounting Theory, Stakeholder Theory, Legitimacy Theory, Institutional Theory, Public Interest Theory, Capture Theory and Economic Interest Group Theory.

2. A principal-agent relationships involves the owners (principals) delegating decision-making authority to managers (agents). A conflict occurs when the agents pursue acceptable levels of shareholder wealth and profit rather than a maximization of profit. They are pursuing their own self-interests. One way that the agents act in their own self-interests would be by focusing on long-term job security. This could cause the agents to limit the amount of risk taken by the firm. The firm may have an opportunity that is considered a riskier venture that could produce high profits if successful. If the venture proves to be unsuccessful, then the agent is at risk of dismissal. Therefore,

Our textbook defines an agency problem as a “conflict between the goals of a firm’s owners and its managers” (Megginson & Smart, 2009). It then defines agency costs as dollar costs that arise because of this conflict. In the corporate structure, stockholders are the owners of the firm, and they elect a board of directors to oversee the firm and help protect their investment. The board then hires the right corporate managers to run the firm with the goal of maximizing the wealth of the

Most corporate financing decisions in practice reduce to a choice between debt and equity. The finance manager wishing to fund a new project, but reluctant to cut dividends or to make a rights issue, which leads to the decision of borrowing options. The issue with regards to shareholder objectives being met by the management in making financing decisions has come to become a major issue of recent times. This relates to understanding the concept of the agency problem. It deals with the separation of ownership and control of an organisation within a financial context. The financial manager can raise long-term funds internally, from the company’s cash flow, or externally, via the capital market, the market for funds

In trying to identify the agents that were paid off by SNC, the board members found that they were unable to contact some of the agents or to identify their true identity. This breach in the company accounting ethics occurred as a result of material weaknesses in the company's internal controls over their financial reporting which allowed the CEO to sign off on these transactions without informing the company chief

Conflicts between stockholders and creditors Conflict between shareholders and creditors is common for the company which use debt capital to form an optimum capital structure. As mentioned earlier, agency relation exist when one party works as an agent of the principal. In an organization management

Agency relationship refers to a consensual relationship between two parties, where one person or entity authorizes the other to act on his, her or its behalf, and they exist as mutual agreements between individuals, small firms and large organizations. Managerial opportunism is when managers use employer information for personal gain, this creates a conflict of interest, with self-serving managers making decisions that benefit them rather than the company owners or shareholders. Corporate governance problem deals with

Agency problem is a potential conflict between the agent and shareholders in the interest. It is shown that ownership is separated from management. This cause not only is the divergence of ownership and control, but also the information is asymmetrical. When ownership is separated

The principals (the shareholders) have to find ways of ensuring that their agents (the managers) act in their interests.

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a