Week V Assignment Literature & Language Essay Paper

In-depth Analysis of Agency Conflicts
Name
Institution
Course
Date
FINANCE
Table of Contents
Introduction………………………………………..3
Divergent costs……………………………………………4
Agency Theory……………………………………………4
Agency Costs……………………………………………..4
Securities Market being affected by Agency problems………5
Ownership of Shares by the Management………………5.
Solutions to Agency Costs…………………………………….6
Fraud as an Agency Problem……………………………..6
Impact of Agency Theory……………………….7
Conclusion………………………………………….7
References……………………………………………………..8
Introduction
Agency conflicts and problems are common in today's organizations. These conflicts are used to show the different interests of different stakeholders in the organization. An agency problem is a conflict between the management of a company and the stakeholders of a company. This paper will analyze divergent interests, agency theory, agency problems, and some of the ways of solving agency problems.
Divergent Interests
Divergent interests between the management of a firm and the stakeholders have a significant effect on a firm. Divergent interests have negative impacts on the growth of a company because everyone in the organization is concerned with pursuing some interests and this affects the growth of a company. Sometimes the main objective of any company is profit maximization and high rate returns. Such things can trigger conflicts between the management and the stakeholder since their interest are different. For example, stakeholders will want to maximize their return through higher dividends and investment opportunities (Emeagwali, 2017). These conflicts make managers o come up with ways a company can generate returns and indicate that it performing well in the market. In the long run, this might affects the value of the stakeholders in the organization whose main interest is maximizing value through long-term earnings.
For example in the case of Omnitech Company, the organization decided to meet the short term goals of the company instead of the long term goals. This caused a lot of conflicts with the stakeholders of the company. When there are conflicts of interest in any organization, costs will always increase. The company might spend a lot of money on monitoring the activities of the management. The organization will be interested to know the expenditures of the organization and this is where the issue of extra costs comes from. Such implications are later made more serious by other stakeholders like employees, customers, and vendors. Sometimes managers might be interested in fulfilling the demand of customers yet the interests of the stakeholders have been ignored. As a result, important operations in an organization will be affected greatly.
Agency Theory
Agency theory is the theory that has implications on the insider trading activities by reducing the capability of the management of an organization in carrying out insider dealings. The agency normally has legal obligations to the management. These obligations ensure that the management has disclosed all the activities that could affect other people in the organization especially the shareholders. The "nexus contracts" protects the shareholders against the decisions the management might make in the organization. Such laws prevent any dealings made by the management in an organization. Top leaders in a company are not supposed to inquire or get information concern...