Agency Theory

It is assumed that, to the extent they are aware of them, investors point agency prices into their estimations of a stock's value. It is recognized, however, that management will, at times, possess valuable facts that may be not available towards the participants during the financial markets. It is at this factor that signaling theory might come into play. If management has valuable information, it may possibly pick to signal investors as towards content of this information. To try and do so effectively, however, management must not be perceived by investors to simply be attempting to better their own positions (Mitnick, 1993).

There are many methods exactly where management may perhaps signal investors without having destroying their credibility. Management may possibly retain off on workout stock options, as an example. By acting in this manner, management may be seen to be signaling their belief that higher future income will cause the significance of their stock choices to become higher inside the future than they're today (Shaffer, 1995). You'll find numerous other credible signals which management may possibly communicate for the market, including the maintaining or raising of dividend levels. The industry acts on a details communicated to it by corporation management from your software of valuation theory.


The fourth causal point for ones development of short-term opportunistic behavior in American firms has been identified with the changed hiring practices within the typical American corporation. In the past, American corporations tended to promote individuals into senior management positions from in the organization. In the contemporary environment, the standard practice is to achieve outside of the organization for personnel to place in this kind of posts (Staw, 1991). A single result of this adjust in hiring practices is that management personnel no longer spend most of their careers using a single firm, as was genuine inside past. It is felt that managers, knowing their they is going to be using a corporation for only a short time, are additional willing than were there predecessors to produce decisions that will result in short-term benefits, but which could be detrimental towards corporation in the long-run, at worst, or fail to aid it inside the long-run, at best.

Ordercustompaper.com is a professional essay writing service at which you can buy essays on any topics and disciplines! All custom essays are written by professional writers!