Asked by leslie harris on May 12, 2024
Verified
The agency problem can seriously restrain the economic success of a company. What avenues are available to shareholders to bring their goals and those of management into alignment?
Agency Problem
A conflict of interest arising between parties with a principal-agent relationship, where the agent's actions may not align with the principal's best interests.
- Comprehend the notion of agency dilemmas and potential remedies.
- Recognize the significance of ethical principles within corporate governance and their influence on the choices of investors.
Verified Answer
SF
Shelby FrankMay 17, 2024
Final Answer :
The best method to align the goals of managers and stockholders is to tie management's compensation to profitability and/or stock price. This incentivizes managers to take actions that simultaneously benefit themselves and stockholders.
Learning Objectives
- Comprehend the notion of agency dilemmas and potential remedies.
- Recognize the significance of ethical principles within corporate governance and their influence on the choices of investors.
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