The Negative Influences of the Agency Problem

2599 Words11 Pages
The Negative Influences of the Agency Problem on Corporation Governance Anqi Tong University of Bristol Abstract The agency problem, as the product of principle-agent theory, has attracted much attention among companies. It exists when the first-best behavior, which maximizes the company’s interests, is not consistent with the manager’s welfare. The aim of this paper is to survey the extent to which agency problem negatively influences corporate governance by reviewing previous literatures and evaluating the impacts of the agency problem on incentives, management accounting and corporate governance. This paper finds that to a large extent the agency problem will do harm to corporate governance, including passive affects on management accounting and corporate governance. Keywords: Agency problem; Corporate governance; Management accounting Contents Introduction 1 The Manager’s Incentive behind Agency Problem 3 The Negative Influences of Agency Problem on Management Accounting 6 The Negative Influences of Agency Problem on Corporate Governance 9 Conclusion: 11 Bibliography 13 Introduction About four hundred years ago, companies evolved into a new style: a number of shareholders formed a company so as to obtain benefit and bear risk together. This kind of company is called limited liability company, which means the shareholder’s personal liability is limited to his share capital in the company. By that it means that shareholders are merely the investors who contribute capital in the company. It is widely accepted that shareholders themselves know little about directing business. As a result, they appointed managers to run the company on their behalf. Generally, managers are agents with authority delegated from the legal owners (Seal, 2006) [9]. More usually, the aims of shareholders and managers may not be similar, that is to say,

More about The Negative Influences of the Agency Problem

Open Document