INTERMEDIATE FINANCIAL MANAGEMENT
12th Edition
ISBN: 9781305718265
Author: Brigham
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Question
Chapter 10, Problem 2Q
Summary Introduction
To discuss: Possible agency conflict between managers/ inside owners and outside shareholders.
Expert Solution & Answer
Explanation of Solution
Managers or owners benefit from better wealth due to ownership, but they also enjoy the perks they consume, including lavish offices, golf club memberships and vacations. If the owner or manager is the only manger, then the owner/supervisor bears full price of the perks.
But if the owner/ supervisor only own a part of the company, the manager reaps all the advantages of the perks however the cost is shared by external shareholders. Potential buyers know this might happen, so that they pay much less for a minority interest in a company.
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