Agency Problem

In: Business and Management

Submitted By maishokry
Words 2203
Pages 9
McDonald’s Corporate Company Profile

|About McDonald's: [pic] |

|McDonald's is the leading global foodservice retailer with more than 30,000 local restaurants serving 52 million people in more than 100 countries each |
|day. More than 70% of McDonald's restaurants worldwide are owned and operated by independent local men and women. |

|McDonald's is one of the world's most well-known and valuable brands and holds a leading share in the globally branded quick service restaurant segment of |
|the informal eating-out market in virtually every country in which we do business. |
| |
|Serves the world some of its favorite foods - World Famous French Fries, Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin. |
| |
|[pic] [pic] [pic] |
| |
| |

Similar Documents

Agency Theory

...AGENCY THEORY The agency theory concept was initially developed by Berle and Means (1932), who argued that due to a continuous dilution of equity ownership of large corporations, ownership and control become more and more separated. This situation gives professional managers an opportunity to pursue their own interest instead of that of shareholders.. In ‘theory’, shareholders are the only owners of a company, and the task of its directors is merely to ensure that shareholders’ interests are maximised. More specifically, “The ‘duty’ of directors is to run the company in a way which maximises the long term return to the shareholders, and thus maximises the company’s profit and cash flow. However, Jensen and Meckling (1976) observed that mangers do not always run the firm they work for to maximise shareholders’ wealth. From this observation, they developed their agency theory, which took into account the principal-agent relationship as a key determinant in determining firm performance. According to their definition, “An agency relationship is a contract under which one or more persons (the principal[s]) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent . The problem is that the interest of the principal and the agent are never exactly the same, and thus the agent, who is the decision-making part, tends always to pursue his own interests instead of those of the principal. It means......

Words: 727 - Pages: 3


...Agency Costs (Fama and Jensen 1983) Contracting problem or principal/agent problem. Agent is person tasked to do something on behalf of the principal. Jensen and Meckling (1976) Definition: “ We define an agency relationship as a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf, this involves delegating some decision making authority to the agent”. Examples: Patient – Doctor (delegate authority to doctor to choose medication), Client – Lawyer, Client – Taxi Driver. CEO and management team are agents of the stock holders with aim to raise stock price as high as possible. Why hire agents? * To access their skills or expertise(main reason) * To free up time for other things (Opportunity Cost), Eg. Tiger Woods does not cut his own grass at home, he knows his grass. * To fulfil a legal requirement – eg. External Auditor, Priest for marriage. * To send a signal– eg. Hire best law firm or investment bank in a takeover situation, not necessarily because you need them but because it will intimidate the other side. Eg. Goldman Sachs is our banker. Signalling to market place The basic Problem Agents are utility maximisers concerned mainly with their own happiness. Ie. They do not behave exactly as principal wishes they would. “If both parties to the relationship are utility maximisers, there is a good reason to believe that the agent will not always......

Words: 815 - Pages: 4

Agency Problem

...Agency Problems and Dividend Policies Around the World Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny* January 1999 Abstract This paper outlines and tests two agency models of dividends. According to the “outcome” model, dividends are the result of effective pressure by minority shareholders to force corporate insiders to disgorge cash. According to the “substitute” model, insiders interested in issuing equity in the future choose to pay dividends to establish a reputation for decent treatment of minority shareholders. The first model predicts that stronger minority shareholder rights should be associated with higher dividend payouts; the second model predicts the opposite. Tests on a cross-section of 4,000 companies from 33 countries with different levels of minority shareholder rights support the outcome agency model of dividends. The authors are from Harvard University, Harvard University, Harvard University and University of Chicago, respectively. They are grateful to Alexander Aganin for excellent research assistance, and to Lucian Bebchuk, Mihir Desai, Edward Glaeser, Denis Gromb, Oliver Hart, James Hines, Kose John, James Poterba, Roberta Romano, Raghu Rajan, Lemma Senbet, René Stulz, Daniel Wolfenzohn, Luigi Zingales, and two anonymous referees for helpful comments. 2 The so-called dividend puzzle (Black 1976) has preoccupied the attention of financial economists at least since Modigliani and Miller’s (1958, 1961) seminal......

Words: 11836 - Pages: 48


...Agencies 1 World Wide Regulatory Agencies Amy Lynn Wooldridge HCA375: Continuous Quality Monitoring & Accreditation Instructor: Heather Ables December 4, 2011 Agencies 2 “Clinical Contract Research Organizations (CROs) provide a range of services from consulting to labor- intensive tasks such as data processing”. (Kaluzny & McLaughlin, 2006, p.318) The majority of CRO growth is accounted for by pharmaceutical & biotechnology industries. The contract research organization is contracted by a sponsor or client to perform several functions and duties related to clinical trials. (Kaluzny & McLaughlin, 2006, p. 319) The clinical trials are designed to obtain regulatory approval to market new pharmaceutical or biotechnology products. (Kaluzny & McLaughlin, 2006, p. 319) The services they perform for such clients as pharmaceutical companies include: “consulting and advice related to the design of drug development programs to labor-intensive services that are part of the drug development process; these include clinical monitoring of investigational sites, data management and statistical analysis, and presentations of regulatory submissions for review by regulatory agencies such as the U.S. Food and Drug Administration”. (Kaluzny & McLaughlin, 2006, p. 319) The FDA in the United States clearly mandate practices to protect the public’s health by implementing laws, regulations, and guidelines that provide oversight of the drug......

Words: 611 - Pages: 3

Agency Problems of Mncs

...Questions and Applications * Agency Problems of MNCs a) Explain the Agency problem of MNCs R/: It refers to the conflict of interest between the manager and the subsidiary. The manager creates a subsidiary for the purpose of making decisions that increase the expectations of the shareholders, the subsidiary making the decisions for the purpose of increasing their own profits, they have forgotten the purpose of the manager who has to create incentives or compensation to guide the subsidiary and together achieve the goals. b) Why might agency cost be larger for a MNC than for a purely domestic firm? R/: For cost, monitoring, and size. The MNC is larger and incur many more monitoring costs with subsidiaries abroad, it is also more difficult for foreign subsidiaries to follow the same goals as the MNC, and the size generates chaos. * International opportunities Due to the internet. a) What factors cause some firms to become more international than others? R/: As companies take advantage of labor, they can produce their products in other countries at lower prices. The theory of comparative advantage; where countries use the specialization of a product and internationalize that product to meet the needs of other countries. The imperfect cycle theory and the product cycle theory. (a) Offer your opinion on why internet may result in more international business? R/: The internet allows rapid communication between......

Words: 400 - Pages: 2

Agency Problem

... Definition of 'Agency Problem' A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. The problem is that the agent who is supposed to make the decisions that would best serve the principal is naturally motivated by self-interest, and the agent's own best interests may differ from the principal's best interests. The agency problem is also known as the "principal–agent problem." In kfc Outlets of international fast food chains KFC, Pizza Hut and Cream Bell resumed operation on September 17, 2012 after a three point agreement between the workers and the management. KFC, the biggest fast food chain in Nepal, had remained closed for over a month. On August 14, 2012 Devyani International, a subsidiary of Varun Beverages which operates outlets of KFC and Pizza Hut in Nepal had written a letter to authorities with announcement of immediate closure of all the four KFC and Pizza Hut restaurants running in the capital. “In order to disrupt our operations, some staff have physically attacked and threatened to kill the senior managers,” the letter read.  The settlement of dispute took nearly a month’s time because the management was seeking action against those law breakers who threatened to kill the managers. Moreover, it was demanding a commitment...

Words: 708 - Pages: 3

Market Solutions to the Agency Problems

...Market Solutions to the Agency Problem in Periodic Financial Reporting Edgar Carlos Duarte Aguilar “The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be as dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.” Adam Smith Introduction Enron’s bankruptcy in 2001 was a milestone in recent times as far as corporate governance regulations it is concerned. Besides the executives, the external auditors were accused and found guilty as accomplices in distorting the accounting information the Securities and Exchange Commission (SEC) required from them as a public company that traded its securities in the New York Stock Exchange (NYSE). US Government’s reaction was to increase the regulation on the activities performed by all public companies by issuing the Sarbanes-Oxley Act (SOA) and creating the Public Company Accounting Oversight Board (PCAOB). It was now required that the Chief Financial Officer (CFO) of each company signed a statement on the effectiveness of the Company’s internal control and that the external auditors issued a report on this management’s statement, besides their previously required report on the fair presentation of its financial statements....

Words: 3726 - Pages: 15

Agency Theory

...Agency theory is controversial and essential theory in accounting, economic and finance sphere. The theory raises a problem of agency relationship, in which, cooperating parties- principal and agent, have different goals and division of work. Agency theory arises two problems: the difficulty of verifying what the agent is actually doing, and the conflict between goals and desires of the principal and agent (Eisenhardt, 1989). Agency theory is based on two different approaches: positivist agency theory and the principal-agent research. The first one describes the governance mechanism that limits the selfish behavior of the agent. Positivist agency theory identifies two propositions including governance system. If the contract between the principal and the agent is based on outcomes, there is a high probability that the agent will act in the interest of the principal. In addition if the principal has information to verify behavior of the agent, then the agent will act in the interest of the principal. The second one, principal-agent stream, contains more testable implications than the positivist theory. There are several things like goal conflict, easily measurable outcome, and the assumption that the agent is more risk averse than the principal, that are assumed in principal-agent research. The main difference between these two theories is that the positivist agency theory identifies certain contract alternatives and principal-agent theory indicates which contracts are the...

Words: 324 - Pages: 2


...|Agency Name :  | |PLACEWELL INTERNATIONAL SERVICES CORP. | |POEA License No. : | |POEA-430-LB-022604-R | |Address : | |2nd Floor Suite 214, 217, 220 Aurora Plaza Bldg. Arquiza St. Cor. J. Bocobo St. Ermita Manila Metro Manila | |Tel. No. : | |(632) 5215067; 5264838; 5215067 | |Website : | | (abrasive blaster and painter) (Australia) | | ...

Words: 409 - Pages: 2

The Effect of Agency Problems in Value Maximization

...THE EFFECT OF AGENCY PROBLEMS IN VALUE MAXIMIZATION Siti Balkish Roslan ZP01796 Financial Management 2/2013 According to HBS Professor Michal C. Jensen, many managers are caught in between the desire to maximize the value of their companies and the demands of “stakeholder theory” to take into account the interests of all the stakeholders in a firm. It is already agency problems arise within a firm whenever managers incentives to pursue own interests at the shareholder expense. This is common knowledge in the business world. There have also been devises and mechanisms that have been created to reduce these problems such as managerial shareholdings, concentrated shareholdings by institutions or by block holders, which can increase managerial monitoring and with that improve performance. The use of debt financing can improve performance by inducing monitoring by lenders as well. The labor markets for managers are motivation for managers to attend to their reputations among prospective employers and in improving their performance. The threat of displacement imposed by the market for corporate control can create a powerful discipline on poor performing managers. (Anup Agrawal and Charles Knoeber, 2001) These are some of the known and common incentives. Professor Michael C. Jenson wrote that “The way out of the conflict, lies in a new way of measuring value.” "At the economy wide or social level," he continues, "the issue is the following: If we could dictate the......

Words: 645 - Pages: 3


...Question 1. The first agency risk exists between the food suppliers and the Aegean Isles, Inc. One major reason contributing to Aegean Isles’s success is the high-quality and authentic Greek food, which depends on the quality of the perishable raw material and other non-perishable products served in the restaurant. Once the raw material is not fresh or other products are not high-quality, food served at the restaurants will not taste as good as before and this will definitely harm the restaurants’ reputation. If the new restaurant operates as a company-owned branch, the purchasing unit will be responsible for all the non-perishable inventories and perishable inventories needed. The restaurant managers only have a little authority. Therefore, Aegean Isles can execute better quality control on the products. Also, as Aegean Isles will choose reliable suppliers for long-term cooperation, the likelihood of this agency risk is not that high. However, Aegean Isles has constant suppliers. If one of these suppliers provides stale vegetables or fruits, all the five restaurants controlled by Aegean Isles will be effected negatively. The magnitude of this agency risk is quite high. If the new restaurant operates as a franchise, the franchise will be free to purchase such food as fresh products, domestic beer and wine from a local economy. The franchise may choose second-class products for economic reasons. Aegean Isles can not take much control on the quality of the products. The......

Words: 511 - Pages: 3

2020 Agency

...2015/10/20 A mind map of the 2020 agency A MIND MAP OF THE 2020 AGENCY Propulsion, the official blog of Ignition Consulting Group.  Propulsion May 27, 2015 | By Tim Williams It’s appropriate that in the new agency ecosystem that emphasizes best-in-class providers instead of traditional “full-service” firms, today’s clients have a set of world-class expectations of their agencies. Some of these needs are a 21st century version of long-standing agency qualities. But there’s also a new class of emerging competencies, mostly in response to a new environment for marketing organizations in which: 1.  Established categories of business are being constantly disrupted by innovative new start ups. 2.  Marketing organizations must respond to market forces faster than ever before. 3.  Traditional marketing campaigns are clearly losing their effectiveness, requiring much more marketing invention and experimentation.­blog­post/mind­map­foundations­of­the­2020­agency/ 1/6 2015/10/20 A mind map of the 2020 agency 4.  The marketing function is under constant scrutiny for proof of performance and is increasing under the thumb of finance and operations. 5.  Marketers are saddled with the colossal job of central integration, overseeing and managing the efforts of a large federation of marketing services providers. 6. ......

Words: 602 - Pages: 3

Intelligence Agencies

...Why state Intelligence agencies engage in international intelligence liaison?  9/11 terrorist attacks, 7/7 terrorist attacks, Paris attacks are the implementer of what is called international intelligence liaison. These major terrorist attacks have put intelligence agencies in a place where they need liaison to face the problem. 21st century is witnessing the increase in globalization of intelligence. The phenomenon of international intelligence liaison is central to this process, it is an area where intelligence and international relations come in to connect. This article highlights the key themes that are currently developing within international intelligence liaison relationships. International intelligence liaison which may be defined as the the process of communication or cooperation which facilitates a close working relationship between intelligence organizations and law enforcing agencies of many states and countries. Intelligence agencies act as frontline of homeland defense and security. Right now, no any single state or country is facing the challenge of terrorism. These days international intelligence liaison is occupying space in academic research, political discourses and in state matters. As Adam Svendsen says: ‘Liaison today represents the most significant dimension of intelligence.’ It is high time for world to recognize and realize that existentialist issues such as, pandemics, overpopulation, climate change and now terrorism, are of global level. Therefore...

Words: 4006 - Pages: 17

Agency Problem

...Emerging Markets Review 13 (2012) 516–547 Contents lists available at SciVerse ScienceDirect Emerging Markets Review journal homepage: Corporate governance, agency problems and international cross-listings: A defense of the bonding hypothesis☆ G. Andrew Karolyi ⁎ Johnson Graduate School of Management, Cornell University, 348 Sage Hall, Ithaca, NY 14853, USA a r t i c l e i n f o Article history: Received 30 June 2011 Received in revised form 6 August 2012 Accepted 7 August 2012 Available online 17 August 2012 JEL classification: F30 G15 G32 G38 Keywords: Cross-listing Stocks Bonding International financial markets a b s t r a c t Why firms from around the world seek to cross-list their shares on overseas exchanges has intrigued scholars during the past two decades. A general dissatisfaction with the conventional wisdom about investment barriers segmenting global investors and how cross-listings overcome those barriers cleared the way for newer wisdom about informational problems and agency conflicts, and how firms could overcome weaknesses in corporate governance by listing on, and thus “bonding” to, overseas markets with stronger regulatory oversight, stringent reporting and disclosure requirements and investor protections. Critics have challenged the viability of the bonding hypothesis, which I answer in this review. © 2012 Elsevier B.V. All rights reserved. 1. Introduction Cross-listing — also......

Words: 26372 - Pages: 106

How Adverse Selection and Agency Problems Can Effect the Investors Reaction

...How Adverse Selection and Agency Problems can Effect the Investors Reaction Abstract Adverse Selection and agency problems are the major areas of Concern for both, the investors, and the corporate governance. Company’s good corporate structure can have a positive impact On investors. Our study, with the support of previous studies, tries to prove that the investors are also concerned about the adverse Section and agency problems. This study lacks evidences from the previous researchers regarding the relationship between investor’s reaction and adverse selection and agency problems. Even then it is a good attempt to study the behavior of investors towards investing in the company where the problems of adverse selection and agency problems are present. Key Words: Investors Reaction, Adverse Selection, Agency Problems, Corporate Governance Introduction: This paper describes the reactions of the investors to the corporate governance issues with an emphasis on the situation of agency problems and adverse selection. This paper adds to the existing literature of how investor reacts to different corporate governance issues. The idea is that how adverse selection and agency problems can directly or indirectly affect the investors thinking. Corporate governance has an influence on the investor’s reaction .Many corporate governance issues like board size, outside directors, CEO tenure and other such issues have the impact on investor’s reaction.......

Words: 2452 - Pages: 10