Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 2E
To determine
Dimensions of the shareholder-principle that conflict with manager agents.
To discuss whether the compensation committee will provide more salary and bonuses or long-term incentives to mitigate the agency problem.
To explain the role played by each type of pay in motivating the managers.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Explain several dimensions of the shareholder-principal conflict with manageragents known as the principal-agent problem. To mitigate agency problems betweensenior executives and shareholders, should the compensation committee of the boarddevote more to executive salary and bonus (cash compensation) or more to longterm incentives? Why? What role does each type of pay play in motivatingmanagers?
How would each of the following actions be expected to affect shareholder wealth?a. Southern Company adopts fuel-switching technology at its largest power plants.b. Ford Motor Company pays $2.5 billion for Jaguar.c. General Motors offers large rebates to stimulate sales of its automobiles.d. Rising interest rates cause the required returns of shareholders to increase.e. Import restrictions are placed on the French competitors of Napa wineries.f. There is a sudden drop in the expected future rate of inflation.g. A new, labor-saving machine is purchased by Wonder Bread and results in the layoff of 300 employees.
Explain the Agency theory in relation to the Shareholder theory in corporate governance and the solutions suggested towards the issue of agency problem in corporate governance.
Chapter 1 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Ch. 1 - One of the approaches for the Southern Company to...Ch. 1 - Prob. 2ECh. 1 - Prob. 3ECh. 1 - In the Southern Company Managerial Challenge,...Ch. 1 - Prob. 5ECh. 1 - Prob. 6ECh. 1 - Prob. 7ECh. 1 - Prob. 8ECh. 1 - Prob. 1.1CECh. 1 - Prob. 1.2CE
Ch. 1 - Prob. 1.3CECh. 1 - Prob. 1.4CECh. 1 - Prob. 1.5CECh. 1 - Prob. 1.6CECh. 1 - Prob. 1.7CECh. 1 - Prob. 1.8CECh. 1 - Prob. 1.9CECh. 1 - As a value-maximizing aluminum company, should...Ch. 1 - Prob. 2.2CECh. 1 - Prob. 2.3CECh. 1 - Prob. 2.4CECh. 1 - Energy entrepreneur T. Boone Pickens has proposed...
Knowledge Booster
Similar questions
- One of the approaches for the Southern Company to comply with the Clean Air Act is to adopt fuel-switching technology. Do you think this strategic flexibility would have value to Southern Companys shareholders? Why?arrow_forwardIn the context of the shareholder wealth-maximization model of a firm, what is the expected impact of each of the following events on the value of the firm? Explain why.a. New foreign competitors enter the market.b. Strict pollution control requirements are enacted.c. A previously nonunion workforce votes to unionize.d. The rate of inflation increases substantially.e. A major technological breakthrough is achieved by the firm, reducing its costs of production.arrow_forwardShareholders have legally limited liability with respect to the contracts the company enters into. Explain why such institutional arrangements may lead to an excessive risk appetite of firms depending on the debt ratio.arrow_forward
- which of the following scenario does not involve oppresive conduct ? *select one (a) majority shareholders use theire stonger vote to appoint a legitimate director that the minority shareholders dont like (b) majority shareholders use theire stonger vote to approve benefits to themselves that are not avilable to the minority (c) majority shareholders use theire stonger vote to dilute the value of the miniriti's share capital (d) majority shareholders use theire stonger vote to amend the company constitution in a way that disadvantages to minority (e) majority shareholders use theire stonger vote to approve the sale of company assets to themeselve at below market price.arrow_forwardDescribe the principal-agent problem between firm owners and managers.arrow_forward"Easy access to the capital markets by businesses organized as corporations helps make the corporation popular. However, the corporation also concentrates temptation, since very large sums of 'the other guys' money' are involved. Prosecution of securities law violations during the last few years has revealed many episodes of complete abandonment by CEOs, CFOs, and other corporate officers of their duty of care toward shareholders. Public revulsion and harm to many individuals who trusted their brokers and the claims of company managers between 1999 and 2001 have led to unprecedented numbers of class action lawsuits against corporate officers and record civil damage awards to shareholders.These damage awards typically amount to only a tiny fraction of the money lost by an individual investor who joins such a lawsuit. The remedy usually doesn’t match the injury. Could more extensive government regulation have prevented the major corporate frauds and terrible…arrow_forward
- The agency problem between shareholders and managers is the result of ____. a. separation of ownership and management b. conflict of interests between shareholders and managers c. information asymmetry between shareholders and managers d. all of the abovearrow_forwardWhich of the following is not a characteristic of principal-agent conflicts that often exist in a firm? Firms can usually find solutions that reduce agency costs without increasing monitoring or incentive costs. Managers do not always operate in the best interest of owners because managers care about the noncash benefits of their jobs. Managers generally have a shorter time horizon than owners; thus, managers do not fully take into account the future long-run profitability of the firm.arrow_forwardDescribe the principal-agent problem between firm owners and managers. Make sure you identify the principal and the agent and discuss the information asymmetries and different goals of the two players.arrow_forward
- McDonald’s Global Compensation Practices: This feature explores McDonald’s efforts to develop a global compensation and performance appraisal strategy. McDonald’s, which has over 400,000 managers and senior employees working in 118 different countries, wants its new program to provide some standardization of compensation and performance appraisal for the firm, but at the same time, allow subsidiaries to tailor the program to local market conditions. Discussion Questions 1. What does McDonald’s hope to gain from having a global compensation and performance appraisal system in place? 2. How does the compensation and performance appraisal system introduced at McDonald’s allow managers to take local market differences into account? Why is this type of approach important to employees? 3. How does McDonald’s approach help the company to consider local differences when reviewing the performance of different country managers and awarding bonus pay?arrow_forwardStraight voting: Question 55 options: increases the voting power of minority shareholders. is the normal method for shareholder voting on corporate matters. restricts each shareholder to one vote, regardless of the number of shares owned. must be available for preferred shares.arrow_forwardSemi-Salt Industries began its operation in 1975 and remains the only firm in the world that produces and sells commercial-grade polyglutamate. While virtually anyone with a degree in college chemistry could replicate the firm’s formula, due to the relatively high cost, Semi-Salt has decided not to apply for a patent. Despite the absence of patent protection, Semi-Salt has averaged accounting profits of 5.5 percent on investment since it began producing polyglutamate—a rate comparable to the average rate of interest that large banks paid on deposits over this period. Do you think Semi-Salt is earning monopoly profits? Why?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning