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Corporate Finance High School - Essay Example

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Corporate Finance High School

That is, organizations need to be structured in such a way so the agent will expect that diligently serving the interests of his or her principals will also be in his or her own long-run best interests. In order to accomplish this, the principals need to be reasonably clever in setting up the initial rules of the game that are set in the employment contract , sufficiently vigilant in keeping track of their agents' quality of performance over time, and willing to bear at least some minimum level of "agency costs" in order to provide the necessary incentives
There are many definitions for the term ethical investment, and what this term entails. Ritsie Lowry, maintainer of the GoodMoney site1 suggests that "In one sense, ethical investment is just like traditional investment. Ethical investors pursue the same economic goals as all investors: capital gains, higher income and/or preservation of capital for future needs. However, ethical investors want one additional thing. They don't want their investments going for thing that cause harm to the social or physical environments, and they do want their investments to support needed and life-supportive goods and services". From this certain definition we are able to realize that ethical investment is similar to the conventional investment, but differs to the fact that it needs one more requirement. Ethical Investors are very strict as far as the kind of business their money is going to fund.
Many researches have proved that the ethical investors prefer to invest their money ethically although they know beforehand that the investment will not be as lucrative as a traditional investment. Russell Sparkes 2 in his book mentions "Repeated surveys (the last by Minitel in 1991) have shown that around 40% of the public want their money invested ethically. Interestingly enough, most of those in favor said that they would make ethical investments even if they knew that the returns would be lower than on conventional investments". Nevertheless there exist some facts which prove that ethical investment is quiet lucrative and in some cases more lucrative than the traditional investment. Weidner Investments3, point out four reasons, why the ethical investment is more profitable:
1) Management of the ethical company can focus on genuine growth without worrying about public reactions
2) Legal and hassle related costs are minimal
3) Brand loyalty is less expensive to maintain
4) Active ethical investors and consumers will give the firm free advertising again and again
All these points seem quiet rational and representative of reality. We can assume that ethical ...Show more

Summary

Agency problem is difficult but extremely important and recurrent organizational design problem of how organizations can structure incentives so that people ("agents") who are placed in control over resources that are not their own with a contractual obligation to use these resources in the interests of some other person or group of people actually will perform this obligation as promised - instead of using their delegated authority over other people's resources to feather their own nests at the expense of those whose interests they are supposed to be serving (their "principals")…
Author : gulgowskidelila
Corporate Finance High School Essay essay example
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