Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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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
Which of the following is an example of the agency problem?
a.
Managers always invest in projects that have appropriate returns and that will increase shareholder wealth.
b.
Managers resign when they believe they have not always acted in the best interests of shareholders.
c.
Managers conduct an acquisition program purely to increase the size of an organisation.
d.
Managers look for new projects as they want to avoid business risk.
Clear my choice
Explain
Knowledge Booster
Similar questions
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- Which of the following methods would be most likely to decrease the agency problems by helping motivate managers to act in the best interests of shareholders? 1. Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries. 2. Eliminate a requirement that members of the board of directors have a substantial investment in the firm's stock. 3. Decrease the use of restrictive covenants in bond agreements. 4. Take actions that reduce the possibility of a hostile takeover. 5. Elect a board of directors that allows managers greater freedom of action.arrow_forwardWhich of the following statements is INCORRECT ? Large investment banks finance most of their activities by using retail consumer deposits as the primary source of funds. Failure to monitor the actions of firms in a timely and complete fashion after purchasing securities in the firms exposes investors to agency costs. As a delegated monitor, a financial institution's actions reduce agency costs. Financial institutions provide economies of scale in transaction costsarrow_forwardHow does the adoption of blockchain technology impact financial accounting, auditing processes, and cybersecurity measures within the financial sector, and what are the potential benefits and risks associated with this technological shiftarrow_forward
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