Shareholders vs Managers, Agency Cost

Share adhesive frictioners and managers are both perceived as individual parties attempting to nurse the same goal3. This is liable as shareholders are a group of people who primarily hire their managers, however in many situations this isnt the case, as managers sometimes have their avouch private objectives. This essay will explain the reason fanny conflicting interesting between the two contrasting stakeholders, the shipway in which this affects the firms value and principles, and more than importantly what should be play in order to minimise this problem.

The main objective for a firm brook be measured in different ways, however primarily it is to maximise share price. For shareholder a maximisation in share price would lead to an growth in the value of the entity and thus deduce an increase in growth and total profit. However managers dont everlastingly have the attention of maximising share price, as shareholders hold large amount of legitimate power within the company, as well as generally reaping the financial benefits, wherefore the intentions of the managers can not always be clear, as sometimes they would wildness on personal opportunities. The contradictory in options as utter by Joseph E. Stiglitz would cause an additional cost within the system which is known as the dresser cost.



The first conflict which occurs from the agency problem is the creation of asymmetric information. This is when one party has more information then the other giving them a agonistical advantage in terms of achieving their objectives. This would increase costs as effectively more time would be taken to make decisions, as well as miscommunication could occur causing diseconomies of scale, therefore reducing the firms value.
The equilibrium of power is crucial in a firm, as imbalances could cause a decrease in productivity due to the lack of accuracy in decision reservation and the final transactions. An adverse effect could occur as alike to the reasoning why government officials are bound...If you want to seize a full essay, order it on our website: Ordercustompaper.com



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