5)Agency problems in corporation oStockholders elect a board of directors ● Board of directors then elect the officers Chairman of the board Chief executive officer(CEO) Chief operating officer(COO) President Chief financial officer(CFO) Management Vice presidents Treasurer Secretary 渊外经价货多方居 YO年NEB证事0000
5) Agency problems in corporation Agency problems in corporation z Stockholders elect a board of directors z Board of directors then elect the officers – Chairman of the board – Chief executive officer (CEO) – Chief operating officer (COO) – President – Chief financial officer (CFO) – Vice presidents – Treasurer – Secretary Management
...continued Board of directors o Management makes most deals with broad of the decisions policy ●3to5 year strategic o Day-to-day decisions plan following the strategic plan 渊外经价货多方是 YO年NEB证事00003
...continued continued z Board of directors deals with broad policy z 3 to 5 year strategic plan z Management makes most of the decisions z Day-to-day decisions following the strategic plan
...continued Agency relationship The principals hire the agents to perform a service on behalf of the principles. Agency problems Inefficiencies that arise because of agency relationship Agency costs The costs incurred to minimize agency problems 0色 剥外经价贫多方号 YO年N0事0E000
...continued continued Agency relationship – The principals hire the agents to perform a service on behalf of the principles. Agency problems – Inefficiencies that arise because of agency relationship Agency costs – The costs incurred to minimize agency problems
a.Owners and management o Problems created by separation of owners and management Management may maximize its own welfare [higher compensation,more leisure time and lower risk]instead of the owners'wealth. e.g.job security,the consumption of on-the-job perquisites./moral hazard,adverse selection Agency costs [Min. costs to motivate costs to monitor bonding expenditure the opportunity cost of loss profits 剥外经价贫多方号 YO年NEB证事0000
a. Owners and management a. Owners and management z Problems created by separation of owners and management – Management may maximize its own welfare [higher compensation,more leisure time and lower risk] instead of the owners’ wealth. e.g. job security, the consumption of on-the-job perquisites./ moral hazard, adverse selection z Agency costs [Min.] – costs to motivate – costs to monitor – bonding expenditure – the opportunity cost of loss profits
b.Owners and creditors o Problems created by different returns offered to owners and creditors investment of higher risk approved by stockholders new debt issuing approved by stockholders o Agency costs protective covenants in bond indentures e.g.limitation on dividend,debt issuing, in(di)vestment and certain ratios,poison put,etc. a higher fixed return e.g.RJR Nabisco was required by KKR :销外控价贺多六居 YO年N0l到8E事0E00h03
b. Owners and creditors b. Owners and creditors z Problems created by different returns offered to owners and creditors – investment of higher risk approved by stockholders – new debt issuing approved by stockholders z Agency costs – protective covenants in bond indentures e.g. limitation on dividend, debt issuing, in(di)vestment and certain ratios, poison put, etc. – a higher fixed return e.g. RJR Nabisco was required by KKR