Agency costs and ownership structure | Accounting and Finance

  

1. it is an individual report
please read the question and answer it properly :
Assignment question:
Jensen and Meckling (1976) refers to the costs that arise due to the use of an agent by a principal in an agency relationship as agency cost. These costs include (1) the costs of opportunistic behaviour by the agent (such as when the agent places his own self-interest over that of the principal’s), (2) the costs to the principal of monitoring the agent; and (3) the “bonding” costs incurred by the agent to induce the principal to rely on it. Nonetheless, the opportunistic behaviour of the agent may work in the favour of principal when the agent contracts with other parties such as debtholder. This phenomenon has been explained as the agency cost of debt (Kim and Sorenson, 1986). Furthermore, Coffee, Jackson, Mitts and Bishop (2018) extend the agency cost argument to the relationship between the different types of shareholders associated with modern corporations. Specifically, Coffee et al., (2018) find that there is the tendency for strong and powerful shareholders to exploit less powerful shareholders. These empirical evidences suggest that any investor may be susceptible to some form of exploitation as result of the agency relationship and its associated agency problem.
Critically examine the following scenarios and state with explanation; 

1. Whether an investor has a high, medium or low level of agency cost 

2. The type of agency cost likely to be assume an investor 

3. The type of corporate governance mechanism which would be appropriate in addressing the type of agency cost
Note: the following scenarios are independent of each other. 

SCENARIO ONE
ABC Ltd, an Australian based firm is a large manufacturing firms with 25 subsidiaries which operates from different parts of the world. On 30th July 2018, Birim Equity fund acquired an additional 25% of shares of ABC Ltd resulting in its total shareholding of 48%. The Herald Sun in its business segment described the acquisition as one which makes Birim Equity a dominant shareholder. How would this situation affect agency cost for prospective investor if
Birim Equity is separated from management
Birim Equity is not separated from management
SCENARIO TWO
Michael Bloomberg, a recent graduate of La Trobe University received $0.5 million cash as his inheritance after the death of his father. Michael has decided to invest his wealth in a listed firm which characterized by many shareholders with each shareholder having a small amount of shares
SCENARIO THREE
Tori, a small-time investor, has decided to invest in Dada PLC. Dada PLC has a large bank loan on its books.
Please use the following papers to critically examine the scenarios:

 

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360. 

Kim, W. S., & Sorensen, E. H. (1986). Evidence on the impact of the agency costs of debt on corporate debt policy. Journal of Financial and quantitative analysis, 21(2), 131-144.

Coffee, J. C., Jackson, R. J., Mitts, J., & Bishop, R. (2018). Activist Directors andAgency Costs: What Happens When an Activist Director Goes on the Board? 

Required Length: 500 words excluding the references. 

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more