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Remember, an agency relationship can degenerate into an agency confict when an agentacts in a manner that is not in the best interest of his or her principal. In largecorporations, these conflicts most frequenty involve the enrichment of the firm's executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely to occur when shareholders do nat have sufficient information about the decisions and actions being made by the firm's Consider the following scenario and determine whether an agency conflict exists Michael owns Michael's Tantalizing Tees, a T-shirt shop in a small college town in New Hampshire. with a staff of three part-time employees, Michael operates the business in accordance with his personal goals, dreams, and capabilities. e an agency conflict to deal with? O Yes; there is always an inherent conflict of interest between owners and operators (managers) O No; as both the owner and operator of Michael's Tantalizing Tees, Michael has not created the necessary agency relationship through which an agency agency confict. relationship through which an agency conflict can exist. conflict can exist. O No; by having part-time, as opposed to full-time, employees, Michael is prevenbed from experiencing an O Yes; as both the owner and operator of Michael's Tantalizing Tees, Michael has created the necessary agency Consider the following scenario and determine whether an agency conflict exists Five years ago, Jamal created a plant-care business that grew, stocked, and maintained fresh plants in office buildings throughout Portland. Over time, The Green Zone Inc. (TGZ) has grown from a proprietorship into a corporation, now reaching far beyond Portland. To finanoe and support this growth, TGZ issued shares that were sold to TGZ employees, Jamal's family members, and selected outsiders. Jamal is TGZ's chairman of the board of directors and CEO, but he is no longer the largest At the latest annual meeting, two mutualy exclusive proposals were placed on the ballot for discussion and vote. The first was put forth by Jamal and TGZ's management team, and the second was proposed by a small group of athen shareholders. Both groups are adamantly opposed to the ather group's proposal, even though both proposals would likely have the same effect on TGZ's value and riskiness. Does an agency conflict exist between TGZ's management and the small group of appasing shareholders? O Yes; any conflict or disagreement between the firm's managers and its shareholders constitutes an agency O No; Jamal was the original owner of TGz, so he would always be sensitive to the concerns ofthe firm's O Yes; an agency relationship exists, and an agency relationship always gives rise to agency conflicts, regardless O No; although an agency relationship exists between TGZ's management-including Jamal as TGZ's chairman conflict. current owners (shareholders) and would nat engage in an agency confict. of the actual behavior of the participants. and CEO and the firm's shareholders-there is no agency conflict, because no expropriation or wasting of the shareholders wealth has accurred d to attract, retain, and encourage managers by developing For the p attractive compensation packages. These compensation packages have also been intended to reduce potential agency conficts between these managers ast 40 years, companies have attempted to and the firm's shareholders. In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the value of the company's common stock price. long-term True or False: A small number of institutional investors are often able and motivated to bring direct shareholder pressure on a firm's management in an effort to reduce pobential agency conficts. O False O True Wight Worldwide's stock price is currently trading at $20 per share. The consensus among market analysts is that the stock should trade for $30 per share, given the amount, timing, and riskiness of the company's dividends. Is wight Worldwide more or less likely to receive a hostile takeover bid? O More likely O Less likely Remember, an agency relationship can degenerate into an agency confict when an agentacts in a manner that is not in the best interest of his or her principal. In largecorporations, these conflicts most frequenty involve the enrichment of the firm's executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely to occur when shareholders do nat have sufficient information about the decisions and actions being made by the firm's Consider the following scenario and determine whether an agency conflict exists Michael owns Michael's Tantalizing Tees, a T-shirt shop in a small college town in New Hampshire. with a staff of three part-time employees, Michael operates the business in accordance with his personal goals, dreams, and capabilities. e an agency conflict to deal with? O Yes; there is always an inherent conflict of interest between owners and operators (managers) O No; as both the owner and operator of Michael's Tantalizing Tees, Michael has not created the necessary agency relationship through which an agency agency confict. relationship through which an agency conflict can exist. conflict can exist. O No; by having part-time, as opposed to full-time, employees, Michael is prevenbed from experiencing an O Yes; as both the owner and operator of Michael's Tantalizing Tees, Michael has created the necessary agency Consider the following scenario and determine whether an agency conflict exists Five years ago, Jamal created a plant-care business that grew, stocked, and maintained fresh plants in office buildings throughout Portland. Over time, The Green Zone Inc. (TGZ) has grown from a proprietorship into a corporation, now reaching far beyond Portland. To finanoe and support this growth, TGZ issued shares that were sold to TGZ employees, Jamal's family members, and selected outsiders. Jamal is TGZ's chairman of the board of directors and CEO, but he is no longer the largest At the latest annual meeting, two mutualy exclusive proposals were placed on the ballot for discussion and vote. The first was put forth by Jamal and TGZ's management team, and the second was proposed by a small group of athen shareholders. Both groups are adamantly opposed to the ather group's proposal, even though both proposals would likely have the same effect on TGZ's value and riskiness. Does an agency conflict exist between TGZ's management and the small group of appasing shareholders? O Yes; any conflict or disagreement between the firm's managers and its shareholders constitutes an agency O No; Jamal was the original owner of TGz, so he would always be sensitive to the concerns ofthe firm's O Yes; an agency relationship exists, and an agency relationship always gives rise to agency conflicts, regardless O No; although an agency relationship exists between TGZ's management-including Jamal as TGZ's chairman conflict. current owners (shareholders) and would nat engage in an agency confict. of the actual behavior of the participants. and CEO and the firm's shareholders-there is no agency conflict, because no expropriation or wasting of the shareholders wealth has accurred d to attract, retain, and encourage managers by developing For the p attractive compensation packages. These compensation packages have also been intended to reduce potential agency conficts between these managers ast 40 years, companies have attempted to and the firm's shareholders. In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the value of the company's common stock price. long-term True or False: A small number of institutional investors are often able and motivated to bring direct shareholder pressure on a firm's management in an effort to reduce pobential agency conficts. O False O True Wight Worldwide's stock price is currently trading at $20 per share. The consensus among market analysts is that the stock should trade for $30 per share, given the amount, timing, and riskiness of the company's dividends. Is wight Worldwide more or less likely to receive a hostile takeover bid? O More likely O Less likely