Unethical Status (Ageincy Problem)

Unethical Status (Ageincy Problem) Case Study example
Undergraduate
Case Study
Finance & Accounting
Pages 3 (753 words)
Download 0
Agency problems arise because of conflicting interest of shareholders and the management or with lenders. Shareholder-management conflict occurs when managers use the resources of the company for their personal gains rather than pursue the interest of shareholders. …

Introduction

Unethical Status (Ageincy Problem)

Agency relationship occurs when shareholders (principals) hire another person or persons (agents) to undertake certain duties on behalf of them (principals). Agency theory portrays the firm as a nexus of contracts between the holders of resources. This paper explores the type of conflict in the case, effect on stakeholders, type of costs involved and how to minimize the conflict.
Shareholder-Management Conflict: The case involves agency conflict between shareholders and the management. When managers hide some information from shareholders, an agency problem arises. A conflict ensues between shareholders and the managers of the organisation. Managers will most often try to pursue self-interest gains at the expense of shareholders in an imperfect market. According to agency theory, agency problem arises when managers put their self-interest goals before those of shareholders.The asymmetric flow of information in an imperfect market makes it possible for managers to pursue their self-interests rather than that of the organisation (Bhabatosh, 2008). For example, managers are usually in a better opposition to know the ability of the organisation to meet shareholders expectations than the shareholders. Because of uncertainties in the market, managers can always influence the outcome of the performance of the organisation. They can manipulate the results to be positive or negative in pursuit of self-interests. The conflict between shareholders arises when managers seek for deals that reduce the profit of the firm. For example, when managers seek for perquisites and pay rise, there may be a conflict between shareholders and the managers because this would most likely reduce the shareholder value. ...
Download paper
Not exactly what you need?

Related papers

Economic Environment and Financial Status of a Company
In addition, the company operates its hospitality business from Fremantle, Healesville and Melbourne. The company has some subsidiaries as well such as Little Creatures Breweries Pvt. Ltd., which is a popular name in Australia. Another subsidiary assisting the group in its packaging and hospitality vertical is Fremantle Harbour Properties Pvt. Ltd., as recorded last on June 30, 2006 (Reuters,…
Impact of Unethical Behavior Article Analysis
The authors first give some theoretical background by describing the agency theory and the stakeholder theory. Agency theory is the thought that the firm is based around contracts between a principal and an agent, the latter of whom is a manager; the agent is bound by contract to fulfilling his obligations as it pertains to the firm’s objectives. Stakeholder theory is the thought that all…
Finance and Accounting Problem
Bank interest is deducted at source at the rate of 20%. Therefore, they cannot be included as taxable income. Depreciation reflects how fixed assets of business reduce in value through wear and tear. However, depreciation is just an accounting concept with nothing to do with taxation. Depreciation can be manipulated and taxmen do not recognize it as an allowable tax. Instead, annual capital…
Business Ethics Problem
Therefore, employees should behave professionally and ethically in all situations because ethical behavior is the key to the resolution of complex issues. Hall (2011) states, “Ethics pertain to the principles of conduct that individuals use in making choices and guiding their behaviors in situations that involve the concepts of right and wrong” (p. 112). In this paper, I will relate an example…
Sharpe's Budget Problem
The cash budget should include the all the costs likely to be paid and cash to be received (Crosson, Power, and Needles, 2011). The direct cost are the expenses incurable which are directly associated with the revenue sources, and/or can be directly apportioned to that source of the revenue with a high degree of accuracy. The cash budget should be monitored closely so as to establish how closely…
Finance Problem Solving
Therefore, Amber has a net working capital of $200 and a current ratio of 1.20. This indicates that the company will be able to pay any short term obligations that arise unexpectedly due to some investment in the working capital. On the other hand, Barbie has no current assets, but has $600 worth of current liabilities. Therefore, Amber has a net working capital of negative $600 and a weak current…
Ethical problem
Therefore, this discussion seeks to analyze the causes of an ethical conflict between a manager and shareholders that entails the manager hiding some information to the shareholders, with a view to categorize the nature of the conflict, its causes and how it can be avoided. Define the conflict The action of the managers to hide some information to the shareholders is unethical. This is because,…