CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
5th Edition
ISBN: 9781305661653
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
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Chapter 1, Problem 6PROB
Summary Introduction
To determine: What are some actions that stockholders can take to ensure that interests of management and stockholders coincide.
Shareholders authorize managers or executives to make critical decisions pertaining to the firm on their behalf. Stockholders expect these decisions to be consistent with their goal of wealth maximization but sometimes interests of managers conflict with goals of stockholders and that results in agency problem i.e. problem between stockholders (principals) and managers (agents).
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What are some actions stockholders can take to ensure that management’s interests and the interests of stockholders coincide? What are some other factors that influence management’s actions?
A well-run company should align the management’s interest and with the owner’s interests.
What are some actions that stockholders can take to ensure that management’s and stockholders’ interests are aligned? Is this important? What are some of the risks/consequences if the management’s interests are not aligned with the owners?
Explain how a firm might use stock options in order to incentivise a manager to work in the shareholders’ best interests.
Chapter 1 Solutions
CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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- Why might one expect managers to act in shareholders' interests? Give some reasons.arrow_forwardWhat actions that shareholders can take to ensure that management's andshareholders' interests are aligned? Discuss.arrow_forwardWhat actions that shareholders can take to ensure that management’s and shareholders’ interests are aligned? Explain.arrow_forward
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