correct the situation? As we know that agency costs exists in most corporations since the separation of ownership and management in large businesses. Shareholders are the principals and owners; managers are the stockholders’ agents. The problem is to get between shareholders and managers since they have different objectives. Shareholders’ goals are maximizing firms’ value, managers’ goals are benefit themselves, thus the conflicts rise in the company. In this report through
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existence of two groups of people; principals or superiors and agents or subordinates. The principals will delegate decision making authority to the agents and expect them to perform certain functions in return for a reward. Both the principals and the agents are assumed to be rational economic persons motivated solely by self-interest but may differ with respect to preferences, beliefs and information (Jensen and Meckling, 1976). The principal/agent relationship can exist throughout any organisation and
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another party, the agent who performs that work. In the context of corporation, the agents are the managers and the principals are the shareholders. Agency theory as related to the corporation is set in the context of the separation of ownership and control as described in the work of Berle and Means (1932) Agency relationship Agency relationship is defined by Jensen & Meckling (1976) as a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some
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stakeholders 3. Agency theory c) A contract under which one or more person engage another person or persons to perform some service on their behalf d) Agency problem rise because of the conflict of interest between principle and agent e) Three specific problems: i. Managers try to maximize their wealth at the expense of shareholders ii. Tendency for management to focus on short-term performance iii. Different attitude of managers and shareholders
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decisions is called the risk return trade off. | Conflicts of interest and moral hazard issues that arise when a principal hires an agent to perform specific duties that are in the best interest of the principal but may be costly, or not in the best interests of the agent. The principal-agent problem develops when a principal creates an environment in which an agent has incentives to align its interests
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Corporate Social Responsibility and Accounting - A Literature Review Master thesis in Financial Accounting Fall semester 2012 Supervisor: Kristina Jonäll Author: Ulla-Christel Götherström Abstract Master Thesis in Financial Accounting, School of Business, Economics and Law, University of Gothenburg, fall semester 2012 Author: Ulla-Christel Götherström Supervisor: Kristina Jonäll Title: Corporate Social Responsibility and Accounting - A literature review. Background and problem: Corporate
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Arthur Anderson 1. Environment, strategic, organizational changes * High quality accounting, promoting integrity and sound audit opinions over short run profits * 1930’s- government adopted laws that require public companies to submit financial statements to independent auditor each year * mantra- good service, quality audits, well managed staff, profits for firm * auditors rewarded for making sound auditing decisions * decision rights to Professional Standards Group *
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The Uses and Abuses of Agency Theory in Business Ethics The spectacular corporate scandals and bankruptcies of the past decade have served as a powerful reminder of the risks that are involved in the ownership of enterprise. Unlike other patrons of the firm, owners are residual claimants on its earnings.1 As a result, they have no explicit contract to protect their interests, but rely instead upon formal control of the decision-making apparatus of the firm in order to ensure that their interests
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perspective, restraints and loopholes indeed exist in the current context of economy. 2 The Current Pay System In the beginning of 1990s, a high level of executive compensation has already been regarded as an effective measure to solve the principal-agent problem within a company, that is, to align the benefit of shareholders and executive managers. It’s believed that the rise in executive pay serves as strong incentives, and conceivably, it could be stronger with a larger sum of money (Jenson, M and
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Enron: Case Study 1 The purpose of this paper is to formally address the Enron scandal that came out in late 2001. It will discuss a brief introduction to how Enron came to be such a large and powerful corporation and the decisions made which resulted in its ultimate downfall. While discussing these time periods, accounting issues such as the agency and horizon problems as well as agency costs and the manner in which they affected Enron will be dissected additionally. Lastly, an analysis
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