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Finance & Accounting
Pages 6 (1506 words)
Introduction The basic objective of management of a business is to increase the shareholders’ wealth and as such their basic purpose is to take actions and make decisions which consistently increase the value of the shareholders. Accordingly, managers of firm therefore operate as the stewards for shareholders and it is the basic responsibility of shareholders to ensure that managers fulfill this responsibility.
Financial statements also provide an insight into whether the managers actually are carrying out their duty of stewardship or not. Managers however may not always act in best interests of shareholders as theory suggests that managers may take actions which may not result into increase in shareholder wealth. Such actions of the managers may therefore suggest that managers may not be fulfilling their role of stewardship. The potential conflict between the shareholders and managers of the firm therefore may not result into the overall welfare of the shareholders and firm in general. This paper will therefore discuss as to whether the financial accounts are prepared to enable shareholders to actually monitor the stewardship of managers or not. Stewardship Agency Theory outlines that there may be conflict of interest between the shareholders and managers of the firm. The basic objective of managers is to ensure that they act in a manner which always results into an increase in the value for shareholders. This therefore requires that the managers must actively pursue the objective of maximizing shareholders wealth. ...
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