Agency problems

Consider the following scenario and determine whether an agency conflict exists:

Brian owns Brians Tantalizing Tees, a T-shirt shop in a small college town in Georgia. With a staff of three part-time employees, Brian operates the business in accordance with his personal goals, dreams, and capabilities.

Does Brian have an agency conflict to deal with?

No; by having part-time, as opposed to full-time, employees, Brian is prevented from experiencing an agency conflict.

Yes; as both the owner and operator of Brians Tantalizing Tees, Brian has created the necessary agency relationship through which an agency conflict can exist.

Yes; there is always an inherent conflict of interest between owners and operators (managers).

No; as both the owner and operator of Brians Tantalizing Tees, Brian has not created the necessary agency relationship through which an agency conflict can exist.

Consider the following scenario and determine whether an agency conflict exists:

Five years ago, Edison created a plant-care business that grew, stocked, and maintained fresh plants in office buildings throughout Houston. Over time, The Green Zone Inc. (TGZ) has grown from a proprietorship into a corporation, now reaching far beyond Houston. To finance and support this growth, TGZ issued shares that were sold to TGZ employees, Edisons family members, and selected outsiders. Edison is TGZs chairman of the board of directors and CEO, but he is no longer the largest shareholder.

At the latest annual meeting, two mutually exclusive proposals were placed on the ballot for discussion and vote. The first was put forth by Edison and TGZs management team, and the second was proposed by a small group of other shareholders. Both groups are adamantly opposed to the other groups proposal, even though both proposals would likely have the same effect on TGZs value and riskiness.

Does an agency conflict exist between TGZs management and the small group of opposing shareholders?

Yes; any conflict or disagreement between the firms managers and its shareholders constitutes an agency conflict.

No; Edison was the original owner of TGZ, so he would always be sensitive to the concerns of the firms current owners (shareholders) and would not engage in an agency conflict.

Yes; an agency relationship exists, and an agency relationship always gives rise to agency conflicts, regardless of the actual behavior of the participants.

No; although an agency relationship exists between TGZs managementincluding Edison as TGZs chairman and CEO and the firms shareholdersthere is no agency conflict, because no expropriation or wasting of the shareholders wealth has occurred.

For the past 40 years, companies have attempted to attract, retain, and encourage managers by developing attractive compensation packages. These compensation packages have also been intended to reduce potential agency conflicts between these managers and the firms shareholders.

In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the ( short term, or long term ) choose one of them value of the companys common stock price.

Great Fortunes Baking Companys stockholders are mostly individual investors, and there is relatively little institutional ownership. If several pension and mutual funds were to take large positions in Great Fortunes Baking Companys stock, direct shareholder intervention would be (more,or less) choose one of them likely to motivate the firms management.

Katz Investment Groups stock price is currently trading at $22.5 per share. The consensus among market analysts is that the stock should trade for $30 per share, given the amount, timing, and riskiness of the companys dividends. Is Katz Investment Group more or less likely to receive a hostile takeover bid?

More likely

Less likely