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risk-return trade-offmost financial decisions comprise alternative courses of action the choices have different returns and risk as like example
head office and branch or subsidiarymnc has diverse operations set up in dissimilar geographical locations the hq acts like the principal and the
solutions to the conflict - relationship between auditors and shareholders1 firingthe auditors may be detached from office at the agm via the
agency relationship between auditors and shareholdersshareholders appoint auditors as per the provisions of section 1591-6 of the companies act the
solution to the agency conflictthe government can acquire the following actions to protect itself and its interests 1 acquire monitoring costseg the
agency relationship between government and the shareholdersshareholders and via extension the company they own operate within the environment
solutions to agency problemthe bondholders might receive the following procedures to protect themselves from the process of the shareholders that
restrictive bond or debt covenantin this case the debenture holders will impose strict conditions and terms on the borrower these restrictions may
actions of shareholders in agency conflicta disposal of assets required like collateral for the debt in thisin this case the bondholder is exposed to
important points for shareholders and creditors 1 in raising capital the borrowing firm will constantly question the financial securities in form of
shareholders and creditors shareholders and creditors or bond or debenture holdersbondholders are lenders or providers of long term debt capital
opportunity cost or residual lossit is the cost due to the failure of both parties to act optimally like as in example ofa lost opportunities because
monitoring costs - agency coststhis is incurred to prevent undesirable managerial actions they are meant to ensure that both parties live to the
contracting cost - agency coststhese are costs acquired in devising the contract between the shareholders and managersthe contract is drawn to ensure
selection of remuneration policy the alternative of a suitable remuneration policy through a company will depend with another thing on1 cost the
executive share options plansin a share option format selected staff can be provided a number of share alternatives each of which that provides the
solutions - shareholders and management conflict conflicts between management and shareholders may be resolved as follows like1 pegging or attaching
pursuing self esteem ambitions and creative accountingpursuing power and self esteem ambitionsthis is called empire building to enlarge the firm via
different evaluation horizons and mbodifferent evaluation horizonsmanagers might undertake projects that are profitable in short-run shareholders on
different risk-profile - shareholders and managementshareholders will generally prefer high-risk-high return investments while they are diversified
incentive problem and consumption of perquisitesincentive problemmanagers may have fixed salary and they may have no incentive to work hard and
shareholders and managementthere is near separation of ownership and management of the firm landlord employs professionals as managers who such have
stewardship accountingshareholders contribute capital that is provided to the directors that they employ and at the end of each accounting year
agency theory an agency relationship arises whether one or more parties identified the principal contracts or hires another identified an agent to
business ethics - objectives of business entityconnected to the question of social responsibility is the matter of business ethics ethics are