Finance

histrionics Conflict: Risk Minimization In position for us to fully understand government billet infringe and the personal effects it has on the involved parties, we must first understand agency theory. Agency theory is based on the blood mingled with a principal and an agent. The stakeholders ar referred to as the principal, while the top specify managers be called agents. The principal hires an agent to make decisions or handsome in the top hat relate of the principal. there are deuce main agency relationships in business. They are the relationship between stockholders and managers and the relationship between stockholders and creditors. An agency skirmish refers to a conflict of interest between agents and principals. These conflicts often arise when the managers of a partnership dont act in the opera hat interest of the shareholders, which in many cases are the stockholders or the bondholders. There is a potential for agency conflict anytim e the owner of the family owns slight than 100 percent of the companys commonality stock. Since the absolute majority of corporations managers own merely a junior-grade percentage of the company, the potential for agency conflict is signifi shtupt. It can be difficult to motivate one company to act on behalf of another party because it unrealistic to look that the principal can observe all the actions of the agent.

This can tow to a incorrupt hazard problem. Many different methods are used in an attempt to keep the agent on the job(p) in the best interest of the principal. Some of the methods are: having a performance-based incentive extern! alize; direct intervention by shareholders; the do in of firing; and the threat of takeover. The stockholders often incur agency personify when trying to check over moral hazard problems. These agency costs can be in the form of audits, organizational restructuring, or opportunity costs. As a rule of thumb, it is ok to cast up agency costs as long as each dollar spent results in an incremental increase in shareholder wealth. As mentioned before, the other...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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