33:620:492 Lecture Notes - Lecture 10: Executive Compensation, Agency Cost, Financial Statement
2 Apr 2016
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Document Summary
Corporate governance: a system for managing relaionships among stakeholders in an organizaion to determine and control: Ensure that top-level managers" interests are aligned with other stakeholders" interests, especially those of shareholders: involves oversight in areas where owners, managers, and members of board of directors may have conlicts of interest, examples of areas of oversight: Process for elecing members of board of directors. Potenial problems with agency relaionship: for publicly-held companies in the u. s. , ownership and control are separated. Principal and agent may have diferent interests or goals: principals (owners) rely on corporate governance to control this problem. Managerial opportunism: seeking of self-interest with guile (cunning or deceit, can be both: an aitude (inclinaion) Cut back on r&d to achieve short term earnings goals. Unauthorized personal use of corporate jets, excessive entertainment, Agency problem etc: the need to control agency problems gives rise to: Individual inancial losses: collecively, these costs are known as agency costs.
