Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Question
Chapter 10, Problem 2Q
Summary Introduction
To discuss: Possible agency conflict between managers/ inside owners and outside shareholders.
Expert Solution & Answer
Explanation of Solution
Managers or owners benefit from better wealth due to ownership, but they also enjoy the perks they consume, including lavish offices, golf club memberships and vacations. If the owner or manager is the only manger, then the owner/supervisor bears full price of the perks.
But if the owner/ supervisor only own a part of the company, the manager reaps all the advantages of the perks however the cost is shared by external shareholders. Potential buyers know this might happen, so that they pay much less for a minority interest in a company.
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Students have asked these similar questions
What is the possible agency conflict between inside owner/managers andoutside shareholders?
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Chapter 10 Solutions
Intermediate Financial Management (MindTap Course List)
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Similar questions
- Explain the term “agency relationships” and discuss the conflicts that might exist in the relationship between’i) Shareholder and managersii) Shareholders and creditorsWhat steps may be taken to overcome these conflicts?arrow_forwardAgency problem arises due to the divergence or divorce of interest between the principal and the agent. Discuss shareholders-management agency relationship, conflict and resolutionarrow_forwardHow do you resolve conflict of interest in an organization?arrow_forward
- Which statement best describes the essence of the Agency Problem? Shareholders allocate decision-making authority to the managers, who might act dishonestly or guard their own self-interest. Managers and shareholders always have aligned interests and goals. Managers always act in the best interest of shareholders. Shareholders retain all decision-making authority.arrow_forwardA According to shankman(1999), two features make agency relations special. One of this is inherent conflict of interest between shareholders and managers. What is the other? a- limited communication between owners and managers b- large difference in defined rights and obligations c- informational asymmetry between principal and agents d- short term focus of the ownership goalsarrow_forwardAgency cost arise from the senior management's inability to control shareholder true or False. Statearrow_forward
- What is the concept of apparent authority? Give an example of how it might crop up in the business environment.arrow_forwardWhat actions that shareholders can take to ensure that management’s and shareholders’ interests are aligned? Explain.arrow_forwardWhat actions that shareholders can take to ensure that management's andshareholders' interests are aligned? Discuss.arrow_forward
- Which of the following is not part of the definition of internal control? Separation of duties Safeguard assets Encourage employees to follow company policies Promote operational efficiencyarrow_forwardWhich of the following does not help align managerial and shareholder incentives? Question options: a) Market for Corporate Control b) Product Market Competition c) Antitrust Law d) Corporate Law e) Markets for Directorsarrow_forwardAny situation where a potential conflict can arise between the firm's owners and its managers is referred to as a(n): Group of answer choices organisational problem. compensation issue. agency problem. personnel conflict. control issue.arrow_forward
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