Concept explainers
To identify: The actions that stockholders can take to ensure that the management and stockholder’s interests are aligned.
Introduction:
Stockholders: Stockholders are the owner of the company who invest funds in the business. Stockholders have the voting right and control over the management. The relationship between the stockholder and manager is like the relationship of principal and agent
Managers: Managers are the agent of the stockholders who perform for the stockholders. The mangers should not do any such action which is detrimental to the interest of the stockholders. There can be a situation where conflicts may arise between manager’s personal interest and stockholders interest, in such situation the priority should be given to the stockholders interest.
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Chapter 1 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
- What conflicts of interest can arise between managers and stockholders?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
- What are governance mcechanisms that help align the incentives of stockhlers and managers - help monitor and control manegement.arrow_forwardA 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?arrow_forwardExplain how a firm might use stock options in order to incentivise a manager to work in the shareholders’ best interests.arrow_forward
- Describe some mechanisms that are used to solve the stockholder/bondholder agency conflict and the stockholder/manager conflict. How effective are each of these methods in accomplishing their goal? Why?arrow_forwardWhat is corporate governance? How does corporate governance affect the returns generated for stockholders?arrow_forward
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning