FINS3626 Lecture Notes - Lecture 5: Executive Compensation, The Incentive, Activist Shareholder
Document Summary
The explicit (and implicit) law of the firm; Minimise conflicts of interest amongst shareholders; and. Ways to minimise conflicts of interest between shareholders and managers (i. e. agency costs and problems) The effort of management is not reflective of what the shareholders would like them to spend on activities. External mechanisms (e. g. takeover threat) relatively strong. An alternative system: germany, japan, asia, etc. Managers, large (controlling) shareholders, and small shareholders. If managers have ownership of shares, it"ll align their interests with the interests of the firm. Usually has rules such as you must hold the shares for at least 5 years to align their interest with the firm"s long-term goals. Regulations, codes and principles, disclosure rules, auditing rules, etc (external) The transition from a small, private business to a large, publicly listed corporation. Public or private companies with both large (controlling) and small (minority) shareholders. Incentive problem (i. e. agency conflict) and entrenchment problem.
