Agency theory applications
12 important questions on Agency theory applications
Do incentive contracts work?
What mechanisms are in place to align incentives of managers and shareholders?
- Separation of ownership and control
- coordination: incentive alignment
- information: monitoring
- environmental pressure
One organizational solution is incentive contracts for corporate managers. Name 5 characteristics within these incentive contracts.
- Cash bonus. If targets are met managers get a cash bonues
- Share plans. Make managers shareholders when they start or as part of compensation package.
- Stock options. Give managers the right to buy shares at fixed price at a specified moment in time.
- Temporary contracts. Continuation depends on performance
- Reference group-based payment. Payment based on relative performance compared to reference firms.
- Higher grades + faster learning
- Never study anything twice
- 100% sure, 100% understanding
For my 1st exam I got a C. Then, I started looking for ways to learn better and I came across Study Smart. Since then I have scored a A+, A, A- and another A. I highly recommend it to everyone who wants to hear it. I am so happy with it!!
I was struggling to finish all my first-year subjects for 3 years. Then I discovered Study Smart, which helped me to finish all of them within 3 months.
Because of StudySmart, things are going well in many ways. Before, I always had study stress and no time for anything. Now I feel calm and confident (because of the program). I used to score a B, now I usually score an A or A+.
Hey Chris, I really want to thank you very much for developing the platform, I usually got around C for my exams, now I scored an A+, an A and a A- !!
Since using Study Smart, my average has increased significantly. I even completed a statistics course with a A+ while I'm bad at statistics. I took on extra courses this year, because of Study Smart. Thanks so much!
Ever since I started studying with StudySmart I passed all my exams !!! No more re-sits!! At first, I was happy with a pass and now I only get good grades. Many thanks!
I aced all the courses I studied with Study Smart. For law, I first scored a D, and now an A! I’m 100% sure that I’ll pass all the courses I study with Study Smart.
I always thought I studied well. My grades were fine. I could never have imagined that applying these study skills would have such a huge and direct impact on my grades, my speed and the pleasure I have in learning.
For the first time, I finally feel totally confident about the way I learn. I have the perfect overview and make great progress in terms of speed and the grades I get. Thanks, Chris!
I immediately started to enjoy learning again, and my grades soared. All of a sudden, everything went better. I highly recommend Study Smart to all students..
Being able to create my materials online made the process of studying so much smoother and quicker. I no longer have to spend a huge amount of my time on creating my summaries.
At first, my notes were a mess. Now I use Study Smart to take my notes in a perfectly structured way. It helps me to save a lot of time and do other things I enjoy.
Students that study with Study Smart get better grades. The system applies all the learning methods in such a way that both well-performing students and students who struggle perform much better.
Hi Chris, I would like to thank you very much. Last year I scored C on a course, and this year I got an A+ thanks to your method! Thank you very much!
The largest effect is that my child is more enthusiastic about school! Every parent wants their children to be happy at school, Study Smart made it happen.
In high school, I failed several exams, and that has really changed now. I actually needed this tool very much back then. Since I started studying with StudySmart, I haven't had any D's. My average score is now an A and those are results I would have never had in the past
With my old method, I passed only 3 out of 8 courses. Since I started taking my notes digitally in Study Smart, I have passed all my courses on the first try. For me, StudySmart takes away the stress of wondering if I will pass or not.
Thanks to StudySmart, I passed all my exams, and with better grades than before! On top of that, I have mastered a very good study method now, which I am confident will help me earn my degree.
What are two things that can happen when incentive contract for corporate managers go wrong?
- Incentives that are too strong can lead to fraud. Infamous cases of managers that have manipulated revenue and profit figures of their firms
- Incentives can trigger risky decisions. Bonuses reward managers in case of success but don't punish in case of failure.
One of the market solutions is competition in different markets. What are four of these competition markets?
- Competition in the product market. ''No need for incentive contracts in perfect markets''
- Competitionn in the managerial labour market. Mangers build reputation of successful performance.
- Competition in the stock market. Through the stock market, investors put pressure on firms to maximize the value of the firm.
- Competition in the market for corporate control. Bad performance of the manager leads to a decrease in share value and can lead to hostile takeover (replacing manager).
What is the role of the government? Name the role and the four characteristics of this role.
- To overcome market failures
- imperfect information
- market power and natural monopolies
- Postive and negative externalities
- Public goods
What are 5 tools / instruments that the government can use to fulfil its role?
- Rules with respect to information disclosure
- Monetary incentives (taxation - subsidization)
- Constraining rules with respect to quantity and quality
- strict requirements with respect to legal monopolies
- Complete state control through public monopolies (state-owned enterprises)
Explain the role of the government in market failure.
What are the agency costs in public good provision and what are the three solutions?
The incentives for bureaucracies: to have large budgets (increase status, power, job security, enjoyable work conditions). The solutions are privatization and private provision, auditing of civil servant bodies and remuneration schemes with strong incentives.
Agency costs in public good provision also has a moral hazard related to citizens. What is this and what are the three solutions for this?
What are costs due to unintended side-effects of state intervention?
What is a solution for the ex post problem in politician agency problems?
The question on the page originate from the summary of the following study material:
- A unique study and practice tool
- Never study anything twice again
- Get the grades you hope for
- 100% sure, 100% understanding
