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The manager of Golden Ray Corporation receives a bonus if company profits exceed $1,000,000 this year....

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Finance

The manager of Golden Ray Corporation receives a bonus ifcompany profits exceed $1,000,000 this year. During the final weekof the year, the manager changes an accounting policy that willincrease reported profits from $950,000 to $1,025,000, triggeringhis bonus. The change in profits of $75,000 will reverse itself inthe next year, and the accounting change has no impact on GoldenRay's cash flow. Discuss the above situation as it relates to bothan agency problem and efficient markets. (Please write between300-500 words)

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3.9 Ratings (546 Votes)
When a manager does something in his own interest rather than in the interest of the company and shareholders this is known as agency problmIn the given question manager increases the reported profits    See Answer
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