Question

Firms must provide the right incentives if they are to get _______ to focus on long-run value maximization. Conflicts exist between managers and stockholders and between stockholders (represented by managers) and . Managers' personal goals may compete with shareholder wealth maximization. However, managers can be motivated to act in their stockholders' best interests through (1) reasonable ______ packages, (2) firing of underperforming managers, and (3) the threat of hostile takeovers. If a firm's stock is undervalued, corporate raiders will see it as a bargain and will attempt to capture the firm in a hostile takeover. _______ generally receive fixed payments regardless of how well the firm does, while ______ earn higher returns when the firm's earnings are higher. Investments in ________ ventures, that have great payoffs to stockholders if successful but threaten bankruptcy if they fail, create conflicts. In addition, the use of additional ________ increases stockholder/debtholder conflicts. Consequently, bondholders attempt to protect themselves by including ________ in bond agreements that limit firms' use of additional ______ and constrain ________ actions.

Answer 1

Answer:

Managers; debtholders; compensation; bondholders; stockholders; risky; debt; convenants; debt; manager's.

Explanation:

An agency conflict can be defined as problems or issues that arises between management, a principal, or an owner, and other parties due to difference in interests.

This ultimately implies that, agency conflict arises when the incentives provided by the management, a principal, or an owner do not align well with those of an agent such as a manager, who is typically playing a fiduciary role.

A manager can be defined as an individual who is saddled with the responsibility of providing guidance, support, supervision, administrative control, as well as acting as a role model or example to the employees working in an organization by being morally upright.

Generally, managers are typically involved in taking up leadership roles and as such are expected to be build a strong relationship between their employees or subordinates by creating a fair ground for effective communication and sharing of resources and information. Also, they are required to engage their staff members (entire workforce) in the most efficient and effective manner.