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Essay / Research Paper Abstract
This 4 page paper answers 4 questions. The first two question refer to agency theory. Question 1; Why do mangers have different interests that shareholders? Question 2; What can the shareholders do to mitigate such conflicts of interests? The next question asks what the relevance of asymmetric information on investment policy and the last question answered is what is ‘home-made’ leverage and what does it imply for capital structure. The bibliography cites 4 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEinvquest2.rtf
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Unformatted sample text from the term paper:
this relationship between the shareholders and the management is often referred to as an agency. The management work as a team and run the company for the benefit of the
shareholders, who have little power, but that also have competing interests. The shareholders will usually be interested in the creation of profit by ay of capital growth and/or dividends. Shareholders
are also able to spread their investments over several companies to spread risk and may not have their financial security invested in only a single company. They are also able
to remove management, but to do this have to take a proactive role and it is unusual for shareholders to take this initiative. Conversely, management have a great deal
of financial risk in the one company and as such as h a greater self interest in their potion in the company, the aim to improve company performance may
also be linked to the way salary levels and bonuses are calculated, this may influence the type of risk they are prepared to take which may differ from the risks
that shareholders would be prepared to accept (Howells and Bain, 2003). There are also many other issues that will impact management decision, such as other stakeholder relationship, such as with
employees, which will be more distant from shareholders as well as the way in which events, such as takeover bids are perceived. Question 2. What can the shareholders do
to mitigate such conflicts of interests? In agency theory it is suggested that the process of needing to provide audited accounts for the limited companies is an essential element
of the post decision information provision, which can minimise the shareholders agency costs (Howells and Bain, 2003). The entire process of accounts being audited is to ensure the accounts
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