AGENCY PROBLEM

A characteristic feature of corporate enterprise is the separation between ownership and management as a corollary of which the latter enjoys substantial autonomy in regard to the affairs of the firm. With widely-diffused ownership, scattered and well organised shareholders hardly exercise any control/influence on management which may be inclined to act in its own interest rather than those of the owners. However, shareholders as owners of the enterprise have the right to change the management. Due to the threat of being dislodged/dismissed, for poor performance the management would have a natural inclination to achieve a minimum acceptable level of performance to satisfy the shareholders requirements/goals, while focusing primarily on their own personal goals. Thus, in furtherance of their objective of survival, management would aim at satisfying instead of maximizing shareholders wealth.

reCAPTCHA is required.

Share This