Suppose management is examining policies that relate to maximizing profit and maximizing the wealth of the stockholders. Which of the aims, in the previous sentence, should be of higher priority to management and why?

  • Management decisions are sometimes not acceptable to shareholders, which creates conflicts. These conflicts are called agency problems.
    • Why do such conflicts develop? Provide at least two examples of agency problems.
    • Are such conflicts more likely to occur in smaller or larger organizations? Why?
    • What can be done to decrease the likelihood of these conflicts? Illustrate your answer using the two examples you gave.
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