Which internal corporate governance provision do you feel has the best ability to limit agency conflicts? Why? Which external corporate governance factor do you feel has the best ability to limit agency conflicts? Why?
Corporate governance is defined as "the set of laws, rules, and procedures that influence the company's operations and the decisions its managers make." Agency costs are "the reductions in a company's value due to actions by agents (managers), including the costs principals (shareholders) incur (such as monitoring costs) trying to modify their agents' behaviors." Corporate governance provisions are set in place as way to help minimize the agency conflict within a firm. Not one provision alone completely eliminates the potential for all agency conflict. As a result, multiple governance provisions are typically in place at a firm to help minimize the risk.
The book lists 5 common internal governance provisions:
- monitoring and discipline (threat to fire) by the board of directors
- charter provisions and bylaws that affect the likelihood of hostile takeovers (remember that in general: shareholders like hostile takeovers, managers do not)
- compensation plans
- capital structure choices
- accounting
control systems
Governance is also affected by external factors that are outside of a firm's control. The book discusses:
- regulations and laws
- block ownership patterns
- competition in product markets
- the media and litigation
Which internal corporate governance provision do you feel has the best ability to limit agency conflicts? Why?
Which external corporate governance factor do you feel has the best ability to limit agency conflicts? Why?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
