EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 1, Problem 12PS
Summary Introduction
To analyze: The individual investors do not have the incentive as large institutional investors to keep a check on the management.
Introduction:
Agency problems: Any type of problem arises only when the opinions of two or more parties are mismatching. The same concept is implied in agency problems. Here, the shareholders/investors have to be considered as principals and the management as an agent. When a manager takes a decision in his favor instead of the firm’s benefit, definitely the agency problem will arise.
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Students have asked these similar questions
Which of the following best characterizes an agency problem?
Group of answer choices
a spending corporate resources
b dislike of firm's bondholders by its equity holders
c differing incentives between managers and owners
d friction between the primary and secondary markets
Why is there a need for a company to be transparent in informing its investors on what is happening inside the organization?
The "Discipline of the Market" means that in a competitive market customers and investors deal with firms that behave well, and leave those that do not. They avoid too much risk and flock to firms that pay the best. Then the good actors succeed, and the bad actors go out of business naturally.
If the Discipline of the Market apply to financial services, then why do we need regulation and why do we need government restrictions where the free market should apply?
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Similar questions
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- How is it possible for a firm to grow itself out of business and how can this be guarded against as a financial manager?arrow_forwardHow could overconfidence affect the financial manager of the firm and the firm’s shareholders?arrow_forwardManagement oversight on internal controls and communication is a key in successfully implementing the financial strategies of any organization. Management cannot do every single aspect in the company, and must rely on communication and ethical conduct to get business done. How does the specific authorization and management oversight of financial capital processes affect internal controls? Provide examples of failed authorization and successful authorization of internal controls and the financial capital outcomes.arrow_forward
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