Agency Theory And The Separation Of Ownership Between...

Agency Theory describes the incentives problems between agents and in a business and the business principals and the separation of ownership between suppliers of capital within a firm (Morris,1987). Agency theory is also concerned with undertaking problems that can exist in the agency relationships due to irregular goals, different aversion levels of risk and decision making with control functions in the firm (Morris, 1987). Agency Theory demonstrates that the precipitate will incur agency cost, which then has an incentive to reduce. The cost of agency is, to decline in a firm’s value when the shareholder managers when pursuing the shareholder interest, particularly when the managers act incompetently or they do not have a to choose a project, making a profit to the shareholders, lastly the cost of monitoring and bonding managers so in the end they share an interest with the shareholders (Morris, 1987). Agency theory is the separation of ownership and the resources thatâ€℠¢s being controlled to explain the accounting choices within firms. Enron, was the world’s largest energy company in 2001. Enron forerunner, Northern Gas Company was incorporated in Delaware on April 25, 1930. From this date through July 1985, Enron had hundreds of purchases and new sub-entity constructions when they acquired Houston Natural Gas Inc. (Kastantin, 2005). On April 10, 1986, the company changed its name to Enron Corporation. Enron was an interstate and intrastate natural gas pipeline company,Show MoreRelatedCompeting Models Of Corporate Governance1398 Words   |  6 Pagesthe stakeholder model of corporate governance, firms owned and controlled by small number of major shareholders. This model of corporate governance often called as the relationship based method due to the close relationship maintained between companies and their major shareholders. This close relationship, little separation of ownership and control minimises the agency problem. However, as a re sult of the minimum separation of ownership and control, firms would experience misuse of power by dominantRead MoreFinancial Managers Need Only Concentrate on Meeting the Needs of Shareholders - No Other Group Matters1856 Words   |  8 PagesRatios: Profitability 6-8 Liquidity 8-9 Investment 9-10 Conclusion 10 Bibliography 11 Appendix 1 12 A shareholder is someone that legally owns one or more share of stock in a company. The objective of the firm is to maximize shareholder value by increasing the value of the company’s stock. Although other potentials exist, such as survival, maximizing market share, maximizing profits and so on, these are co-insistent with maximizing shareholder value. TheRead MoreThe Effects of Ownership Structure, Board Effectiveness and Managerial Discretion on Performance of Listed Companies in Kenya27922 Words   |  112 PagesTHE EFFECTS OF OWNERSHIP STRUCTURE, BOARD EFFECTIVENESS AND MANAGERIAL DISCRETION ON PERFORMANCE OF LISTED COMPANIES IN KENYA ONGORE, VINCENT OKOTH Thesis submitted in fulfillment of the requirements for the award of the degree of Doctor of Philosophy (Ph D) in Business Administration, School of Business, University of Nairobi, Kenya. 2008. DECLARATION I declare that this thesis is my original work and, to the best of my knowledge, has not been submitted to any university for a degreeRead MoreThe Difference Between Management Governance2146 Words   |  9 PagesThe difference between Management and Governance: Analysis in the context of Small and Medium Enterprises –SMEs.    By Callixte NYILINDEKWE    I. Introduction: Traditionally, corporate governance has evolved around the contract theory and agency problem based on separation of ownership and management (Dube, 2011). The benefits of this separation derive from the monitoring by the board of the CEO activity in the interest of shareholders, and generally in the interest of all stakeholdersRead MoreAgency Theory Essay 329591 Words   |  119 Pages1 The Fundamental Agency Problem and Its Mitigation: Independence, Equity, and the Market for Corporate Control DAN R. DALTON Kelley School of Business, Indiana University MICHAELA. HITT Mays College of Business, Texas AM University S. TREVIS CERTO Mays College of Business, Texas AM University CATHERINE M. DALTON Kelley School of Business, Indiana University Abstract A central tenet of agency theory is that there is potential for mischief when the interests of owners andRead MoreAgency Theory: an Assessment and Review9496 Words   |  38 PagesAgency Theory: An Assessment and Review Author(s): Kathleen M. Eisenhardt Source: The Academy of Management Review, Vol. 14, No. 1 (Jan., 1989), pp. 57-74 Published by: Academy of Management Stable URL: http://www.jstor.org/stable/258191 Accessed: 14/10/2010 10:43 Your use of the JSTOR archive indicates your acceptance of JSTORs Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTORs Terms and Conditions of Use provides, in part, that unless youRead MoreFamily Business Essay3061 Words   |  13 PagesManagement Issues In The Family Business MGT-6340 Dominique Swaffin-Smith Word count: 2650 Submitted by E Pahlsson Content 1. Theory of discussion 2. Corporate governance 3. Family governance 4. Social responsibility 5. Philantrophy 6. Financial performance 7. Berry Bros amp; Rudd limited 8. Conclusion Introduction This report is intended to provide the reader with a discussion of the core areas of interest in terms of assessing a family companies performance. WeRead MoreEffect of Corporate Governance on Financial Performance14210 Words   |  57 Pagessummary†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦12 2.0 CHAPTER TWO: LITERATURE REVIEW†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 13 2.1 Introduction..†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦....13 2.2 theoretical framework†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦..13 2.3 Good corporate governance and operating costs†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.†¦18 2.4 Correlation between good corporate governance and performance ratios†¦Ã¢â‚¬ ¦...20 2.5 Chapter summary†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 24 3.0 CHAPTER THREE: RESEARCH METHODOLGY†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦...†¦Ã¢â‚¬ ¦25 3.1 Introduction †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 25 3.2 Research design†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦25Read MoreCase Study Analysis of Royal Ahold Scandal7067 Words   |  29 Pagesinternational communities. In this paper I will focus on the case study of Royal Ahold and the large accounting fraud that took place within the company. The issues I will address include Ahold’s transparency and disclosure weaknesses, its demanding culture focused on economic growth regardless of certain ethical principles, the weaknesses of corporate governance within Europe and the United States, as well as the influences a company’s global expansion has on corporate governance and its financialRead MoreEmployee Resourcing5963 Words   |  24 PagesFinance Functions Require skilful planning, control and execution of financial activities. There are four important managerial finance functions. These are: a) Investment of Long-term asset-mix decisions These decisions (also referred to as capital budgeting decisions) relates to the allocation of funds among investment projects. They refer to the firm’s decision to commit current funds to the purchase of fixed assets in expectation of future cash inflows from these projects. Investment proposals