To Determine: The nature of agency conflict and the association between ethical considerations.
Introduction:
A corporation is an organization or a business framed by a gathering of individuals, and it has rights and liabilities isolated from those of the people included. It might be a philanthropic or a non-profit association occupied with activities for the public, private, municipal and city or town, which has been sorted out to make a benefit.
A limited liability ensures that a proprietor cannot lose more cash than the resources invested. At the end of the day, it alludes to the measure of risk a financial specialist takes when he invests resources into an organization. Contingent upon the way an organization is sorted out, the proprietors can really lose more than their investment if the organization is bankrupted.
Want to see the full answer?
Check out a sample textbook solutionChapter 1 Solutions
Corporate Finance, Student Value Edition Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition)
- Enron's directors realized that Enron's conflict of interests policy would be violated by Fastow's proposed SPE management and operating arrangements and they instructed the CEO, Andrew Fastow, as an alternative oversight measure, endure that he kept the company out of trouble. What was wrong with their alternatives?arrow_forwardAgency costs are an integral part of agency relationships. they are a key concern in the shareholder/management relationship in that agency cost results in a reduction in the value of the company because of the administration costs in establishing agencies 2. shareholders view a company that operates as an agent to another company as being more risky,and therefore they are willing to pay less for shares in a company 3. agency costs result in a reduction in the value of the company because management pursues its own interest 4. establishment of agency relationships require extensive legal and contractual agreements, which can be very costlyarrow_forwardWhich of the following is an example of the agency problem? a. Managers always invest in projects that have appropriate returns and that will increase shareholder wealth. b. Managers resign when they believe they have not always acted in the best interests of shareholders. c. Managers conduct an acquisition program purely to increase the size of an organisation. d. Managers look for new projects as they want to avoid business risk. Clear my choicearrow_forward
- You are the manager of an oil company, and safety/environmental issues are an important part of the business. While it is clearly important to comply with existing safety and environmental regulations, is legal compliance sufficient for maximizing shareholder value? If compliance is not sufficient, how much more should the firm spend on safety and environmental concerns?arrow_forwardSeveral managers in your company are experiencingpersonal financial problems and have asked that yourcompany switch from LIFO to FIFO so that they canreceive bigger bonuses, which are tied to the company’snet income. How would you respond to this request if youwere the company’s chief financial officer (CFO)? Wouldsuch a switch help the managers? Who could it hurt?arrow_forwardExplain several dimensions of the shareholder-principal conflict with manager agents known as the principle-agent problem. To mitigate agency problems between senior executives and shareholders, should the board's compensation committee devote more to executive salary and bonus (cash compensation) or more to long-term incentives? Why? What role does each type of pay in motivating managers?arrow_forward
- Nancy John, a bright, female investment analyst about to give a major presentation to a group of bankers supporting a corporate acquisition. After walking in and meeting the bankers before you give the presentation, you're asked by your boss to "be a dear and serve them coffee." Imagine the insult and awkwardness of such a situation-what do you do? Do you carry through with the task, sacrificing your dignity or doing something wrong because you can't afford to lose the job? Or do you speak up? A group of Swiss occupational health researchers have recently started a program of research on illegitimate tasks, or tasks that violate "norms about what can reasonably be expected from a given person" in a job. Question: 1. What do you think of this situation? 2. What might cause supervisors and managers within organizations to allocate these kinds of tasks? 3. Can you explain it based on 'positive reinforcement' behavior and suggest some suggestion?arrow_forwardIn a strategy meeting, the computer manufacturing company's president said, "If we raised the price of our product, the company's break-even point will be lower." The financial vice president responded by saying, "The company will also be less likely to incur a loss." As a management accountant would you agree or disagree with these statements and why?arrow_forwardwhat if your company is being targeted by a SPAC would that be a good thing or a bad thing? What factors would you look at to make that determination? what are the pitfalls in selling a company?arrow_forward
- Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation's CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a “good” offer. Kenseth knows the corporation's cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.) Instructions Answer the following questions. a. Who are the stakeholders in this situation? b.…arrow_forwardIn a strategy meeting, a manufacturing company’s president said, “If we raise the price of our product, the company’s break-even point will be lower.” Thefinancial vice president responded by saying, “Then we should raise our price. The company will be less likely to incur a loss.” Do you agree with the president? Why? Do you agree with the financial vice president? Why?arrow_forward1. How is hiring the “next generation” of Chinese elites different from practices here in North America. Is it the same as Clinton’s daughter securing a job at a hedge fund company? 2. What are some of the moral principles involves here and what are some of the consequences of this practice? How does any company stay competitive if others choose to conduct unethical business practices?arrow_forward
- Business/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:CengageIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage