In a broad manner‚ organisational theories can be defined as formal social organisations and their interrelationship with the environment in which they operate. This reading provides insight into the agency and the contingency organisational theories‚ and how management implement these theories into the environment in which their business operates. It also outlines the issues and limitations of these theories‚ using the Coca Cola company as a relevant case study. In addition‚ this essay examines
Premium Coca-Cola Organization Management
about the association between the boss‚ which is the Principal‚ and the worker‚ which is the Agent. A good example for an application of the Agency Theory would be sharecropping‚ where the Principal is the landowner and the Agent is the farmer. Another example for the Agency Theory in a more familiar organizational structure would be the relationship between a company’s shareholders‚ which is the Principal‚ and the company’s CEO‚ which is the Agent. As seen from the table below‚ Agency Theory clearly
Premium Principal-agent problem Information asymmetry
However‚ besides losing the tax shield from debt‚ high equity financing leads to an increasingly diffused ownership‚ which would in turn causes problems such as shareholder – management principal – agent problem and asymmetric information problem. Principal – agent problem: As agent of the shareholder (principal)‚ management should aim at maximizing shareholders’ value‚ i.e. the market value of the equity. However‚ management tends to serve its own interests. In order to make management act in line
Premium Stock market Information asymmetry Finance
Reality Check and the Limits of Principal Agent Theory Arie Halachmi‚ PhD 2011-2011 Distinguished Fulbright Professor Abstract Can partnership and contracting out of the production and delivery of what used to be performed by government improve public sector productivity? However‚ the reality does not always follow the theory. Using an actual case study and a Principal Agent Theory the paper explores and articulates possible limitations of Principal Agent Theory and some issues and possible
Premium Public administration Bus Public–private partnership
References: Albanese‚ R.‚ M. T. Dacin & I. C. Harris (1997) Agents as stewards. Academy of Management Review‚ 22‚ 609-611. Archie‚ B. C. & N. Juha (1997) Understanding Stakeholder Thinking: Themes from a Finnish Conference. Business Ethics: A European Review‚ 6‚ 46-. Bales‚ F. R. (1958) Task roles and social roles
Premium Principal-agent problem Change management Goal
utility maximizers conflicts of interests whenever one less informed party (principal) depends on the actions of another better informed party (agent). Characteristics: info asymmetry makes it impossible for principal to perfectly determine agent’s marginal productivity. This creates an incentive for agents to shirk‚ as agent enjoys full benefit of shirking‚ while the cost of shirking is shared by the principal. This
Premium Finance Contract Investment
package may be added to the remuneration package. The instructor might mention at this point the tie in with agency theory: According to agency theory‚ agents (managers/executives) are utility maximisers and there is no reason to believe that they will necessarily act in the best interest of principals (shareholders) unless the principals’ and agents’ interests are aligned. For example‚ managers have incentives to increase perquisite consumption at the principal’s expense. In order to solve this agency
Premium Principal-agent problem Dividend Stock
relationship between principals and agents in business (In this relationship‚ the principal hires an agent to do the work‚ or to perform a task the principal is unable or unwilling to do. For example‚ in corporations‚ the principals are the shareholders of a company‚ delegating to the agent i.e. the management of the company‚ to perform tasks on their behalf.) Agency theory is concerned with resolving problems that can exist in agency relationships; that is‚ between principals (such as shareholders)
Premium Principal-agent problem Organizational studies Organization
relationship between principals (shareholders‚ investors and owners) and agents (management). Theoretical discussions in business and academia may be a modern phenomena‚ however the dynamics surrounding agency relationships have been around since the dawn of barter and exchange. Most business relationships are fundamentally agency relationships. In simplistic terms principals have interests and goals to which they have transferred the means‚ responsibility and some authority to agents with the expectation
Premium Principal-agent problem Management Business
profits only if it is subject to the possibility of being lost. Investopedia - Risk-Return Tradeoff. (2014). Retrieved from http://www.investopedia.com/terms/r/riskreturntradeoff.asp Agency (principal and agent problems) Conflicts of interest and moral hazard issues that arise when a principal hires an agent to perform specific duties
Premium Information asymmetry Principal-agent problem Rate of return