This research study mainly focuses on answering the question related to possible agency problems that were instrumental in the failure of Lehman Brothers. It also evaluates other possible reasons of its failure.
The research study was conducted through a literature review and the case study research method. The report relies primarily on secondary research, making use of the existing literature from various articles, journals, and newspapers.
The findings of this study suggested that agency problems played a significant the fallout of Lehman Brothers with the company managers involved in taking several risky investment decisions, less on behalf of the owners of the company and more in the interests of top management. The high amount of incentive compensations offered to the top executives encouraged them to resort to such business strategies. Apart from the failure of risk management control within the company, its complex organisational structure and the adverse impact of global financial crisis also played a role in the collapse of Lehman Brothers.
This research study can thus be helpful in conducting further research on agency problems that can arise in other business organisations worldwide. It can be helpful for companies to develop various means to overcome such problems, leading to more sustainable and less risky growth and development. Table of Contents Tables and Figures 2 Chapter I: Introduction 3 1.1Rationale of the Study 5 1.2Aims and Objectives of the Study 6 1.3Research Questions 6 Chapter II: Literature Review 7 2.1 Subprime Crisis 7 2.2 Agency Theory 8 2.3 Agency Problems 9 2.3.1 Contracts 11 2.3.2 Incentive Contracts 12 2.3.3 Management Discretion 13 2.3.4 Evidences Related to Agency Costs 13 2.4 Causes of Failure of Lehman Brothers 14 2.4.1 Complex Organisational Structure 16 2.4.2 Valuation Issues 17 2.4.3 Risk Management Issues 17 2.4.4 Sarbanes-Oxley Act 18 Chapter III: Research Methodology 19 3.1 Type of Research Method 19 3.2 Data Sources 19 3.3 Case Study Research 19 3.5 Research Design 20 3.5.1 Construct Validity 20 3.5.2 Internal Validity 21 3.5.3 External Validity 21 3.5.4 Reliability 22 Chapter IV: Findings and Analysis 22 4.1 Secondary Research Findings 22 4.1.1 Lehman Brothers and its Organisational Structure 22 4.1.2 Lehman Brothers’ Financials 23 4.1.3 Executive Compensations 24 4.2 Findings 25 4.3 Analysis and Discussions 25 Chapter V: Conclusion 26 Works Cited 28 Tables and Figures Figure 1.1 24 Figure 1.2 25 Chapter I: Introduction The financial industry worldwide experienced a great shock with the event of the bankruptcy filing by Lehman Brothers on 15 September, 2008. It is considered to be one of the largest filing of bankruptcy by any organization in United States. This significant incident occurred in the midst of