Corporate Governance - The Agency Problem and Control of the Corporation

6 important questions on Corporate Governance - The Agency Problem and Control of the Corporation

What is a type 1 agency problem?

The possibility of conflict of interest between the shareholders and management of a firm.

What is Proxy voting?

A grant of authority by a shareholder allowing another individual to vote his or her shares.

Can a firm have more classes of shares?

Some firms have more than one class of ordinary equity. Often the classes are created with unequal voting rights.

Primary reason for dual or multiple classes of equity is management of a firm can raise equity capital by issuing non-voting or limited-voting shares while maintaining control.
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What is type 2 agency problem?

The possibility of conflict of interest between controlling and minority share-holders.

What is a related party transaction?

ex a dominant shareholder may benefit more from having one of her firms trading at advantageous prices with another firm she owns.

What is a stakeholder?

r Someone, other than a shareholder or creditor, who potentially has a claim on the cash flows of the firm.

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