related to Principal-Agent Principle
Concept
trying to settle conflicts between interest groups within company
- principal … person which welfare are represented
- agent … person acting to infringe in welfare of principal
- types of conflicts
- less investment, money or time
- corruption
- asymmetric information → high “agency costs”
- trying to reduce agency costs
Relations
Shareholders and Management
- management by third parties → managers do not have shares, just salaries
- managers obligated to act in best best interest for shareholders
- monitoring costs
- free-riding more common with many smaller shareholders → wider held
- monitoring mandatory, even if no single shareholders wants to enforce
Majority and Minority Shareholders
- applies to closely held companies
- principals … minority
- agent … majority
- mostly affecting subsidiaries affected by parent company
- less influence by shareholders on managers
Shareholders and Other Stakeholders
- employees protected by labor law
- works council
- trade unions
- creditors protected by company law
- shareholders to not carry debt
- creditors cannot influence management
- imbalance