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What is the common agency problem faced by shareholders? Describe TWO (2) situations in which stockholders can ensure that management’s and stockholders’ interests are aligned?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter1: The Role And Objective Of Financial Management

Section: Chapter Questions

Problem 8QTD

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Concept explainers

Stockholder's Equity

The stockholders’ equity (often referred to as the book value of the company) is the number of assets available to the stockholder after its entire liabilities is paid off. The stockholders’ equity is also sometimes referred to as owner's equity. The stockholders’ equity or book value generally includes common stock, treasury stock retained earnings. It is an indicator of a company's financial strength and is an important item on the company's balance sheet.

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What is the common agency problem faced by shareholders? Describe TWO (2)
situations in which stockholders can ensure that management’s and stockholders’
interests are aligned?

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