In general, there are four categories of real or opportunity costs incurred by shareholders designed...
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In general, there are four categories of real or opportunity costs incurred by shareholders designed to prevent, mitigate, or correct management- shareholder agency conflicts. They are: 1. Expenditures to minimize management's desire to act contrary to the best interests of shareholders 2. Expenditures to monitor management's activities 3. Expenditures to provide a bond against management dishonesty 4. The opportunity cost of lost profits Consider the following situation and identify both the category of the expenditure and the best device that might be used to prevent, reduce, or correct the agency conflict: A firm's plant manager is afraid that her facility may be closed and her job outsourced to a lower-cost country. To make herself look good, she sets lower-than-appropriate performance goals. Expenditure category: 0 1 03 04 02 Most appropriate form of control device: O Develop a management evaluation and compensation program that puts the burden on the management team to reduce shirking or excessive concern about job security. O Hire an external consultant to address the psychological concerns of the plant managers. Develop a code of ethics that prohibits shirking
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