FINANCIAL MANAGEMENT

Financial Management

Financial Management

Question 01: A

Milgram proposed a general theory of obedience called Agency Theory(Smith & Watts 1992: 263). He suggested that social rules are needed to maintain a stable society and that in order to follow them we surrender some of our free will. People in their everyday lives operate on two different levels:

as autonomous persons, behaving voluntarily and aware of the consequences of their actions

on the agentic level, seeing themselves as the agents of others and not responsible for their action

Most on the time we are free-thinking and aware of our actions. However, when presented with particularly situational cues we tend to switch into an agentic state - in which we see ourselves as the “agents of others”. Consequently, we attribute responsibility for our actions to the authority figure.

Milgram accepted that this clarified the demeanour of the participants in his study; they rejected individual blame, asserting that they were only “doing what they were notified” What initiated people to undergo the agentic state?

In addition, agency theory is based on the relationship between directors and agents. Agency theory occurs when the principal and the agent to create a delegation. According to the Berle and means 1932 and Pratt and Zeckhauser 1985(Stulz 1988: 25), Agency theory argues that the modern corporation in which the share ownership widely held managerial actions deviate from those required to maximize shareholder profits. According to Jensen and Meckling, 1976, from the perspective of agency theory, the owners of directors and managers and agents have lost the agency that the extent to which returns to the residual claimants, owners, falling below what they would be if the directors and owners, provides direct control of the corporatio.

In a real estate agent gets about three per cent commission after closing the sale, so the agent can only perform the minimum job to sell the property. Real estate agent can also act as a link to receive a commission from the principle and the buyer as an incentive not to accept the principle, on its actions(Myers 1977: 147). Long-term strategies include the principle (of the company, business, franchising, or other) to provide incentives, such as an increase in (agency) Commission continues to provide advertising, training and motivation to increase output operations. Carney and Gedajlovic noted that with regard to exogenous factors, the yield managers have an incentive to evade and distort their abilities, because the firm is difficult to differentiate the performance behavior of the manager. Short-term strategies include balancing supply and demand in the shortest turnaround time.

The theory impacts business decisions by focusing on set up incentives as mentioned in the long-term strategies. These events, however, can be very costly and may create moral hazard if the top management of maximizing profits for themselves and not for the workers(Jensen and Smith 1985: 93). Cost control and monitoring operations have the potential to influence both domestic and global fund managers as a strategy can be very expensive, however, this strategy could have a detrimental effect on the survival ...