Analysis of Agency Theory

Analysis of Agency Theory Agency theory is one of the most important concepts of the business areas especially financial economics. Because of its importance, this theory is included in most of the introductory chapters of the modern financial economics books and publications. It is commonly cited as one of the key areas for progress and improvement of the modern financial economics. Moreover, its assumptions provide wide explanations for crucial business areas such as: merger activities, dividend policies, capital structure, corporate restructuring, and executive compensations, etc Agency theory defines the company or the firm as â€Å"nexus of contracts† between different resource suppliers. It is centralized on two different parties: principal, who supply the capital, and the agent who manage the day to day operations for the firm. In other words, it is the relation between one who determines the work and another who does the work. For example, in corporations, principals are the shareholders who delegates work to the agent which is the manager in the company. Agency theory assumes that shareholders and managers are motivated by their self –interest, thus managers are likely to persist their self-interest goal that contradicts with the goals of the owner. However, agents are supposed to work for the self-interest of the principal. This conflict results with a cost called the agency cost. This cost represents the cost of supervising the behavior of the agents as well as the profit loss resulting from operating policies and restrictions on managem ent. Although the agency theory is controversial and contradictory, many scientist talked about this concept and explained its advantages and disadvantages on many business fields’ especially financial economics. Many scientist and scholars talked about the agency theory, and it is one of the most crucial theory in the economic and financial history fields. This theory was originated and created by two scholars, Stephen Ross and Barry Mitnick. Each one had a take a part of the agency theory and created. Economic wise, Stepeh Ross is the one responsible for the economic theory of agency, and financial wise, Barry Mitnick is responsible for the institutional theory of agency. These two scholars used the same concepts but under different assumption. Everyone introduced the theory in his own way or thinking. Ross introduces the agency theory from the side of problems of compensation relation and as an incentive problem. On the other side, Mitnick introduced how the institutions should evolve to deal with deficiencies that is created by the agency relationships. According to Mitnick, â€Å"Behavior never occurs as it is preferred by the principal because it does not pay to make it perfect.† This is the main problem that Mitnick suggest as a deficiency of the agency relationship and he suggested that the society created rules and policies that help the companies to attend these imperfections, managing to deal with them, and adapting to them. Therefore, in order to understand the agency, people need both sides to see the incentive side as well as the organizational structure. However, this theory did not accurately defined properly and introduced to the world until the initiation of Jensen and Meckling articles in 1976. Jensen and Meckling introduces the agency theory as a relationship problem that arises between the owner of the resources and the one who is managing those resources. More general speaking, a conflict can arise between one who owns the capital and the one who is controlling the day to day operation since every party has his own interest that wants to be achieved and those interests can be contradictory. According to Jensen and Meckling, â€Å"Agency cos t arise from the conflict of interest between a principal and an agent.† For example, when managers, who are responsible for decisions that impact the operation of the firm, are not the primary beneficiary of the firm net assets, and do not accept any effect regarding his or her decisions. Moreover, the agency cost is divided into three type of cost: structuring cost, monitoring cost, and bonding cost. Structuring cost is the cost that a firm should take it when manufacturing any product or service such as transaction cost, suck cost, and fixed cost. It is the fixed cost divided by the variable cost. Monitoring cost is watching and supervising the recording of cost daily, weekly, monthly, and yearly. It is very important for the owner to have mangers that allocate the proper time to the proper work and minimize cost as much possible. Due to this problem, Jensen offers many solutions to save the firm from this problem. Setting the use of contract is a cost that the firm should use in order to align the actions of the mangers with the actions of the owner. As Jensen (1994) suggests, â€Å"Managerial decisions designed to strengthen organizations often meet with opposition from colleagues, employees†¦ providing managers with incentives to compromise their decisions.† In other words, the best way to insure that the decisions are not conflicting is to ensure that the trade-off that mangers face are pushing them to take the correct decisions. Therefore, the goal of the agent should increase the firm wealth that lead to increase the performance and market price. Moreover, in order the manager to increase value of the firm, the owner should create compensation plan that trigger the agent to spend his or her efforts or works to maximize the firm profits and productivity. According to the agency theory, the shareholder should have the sense that offering a compensation package to the agents can reduce the agency cost which means that interest of the two parties will be in the interest of the firm as whole, and the two parties will be one team working to maximize the value and the wealth of the organization. The agency theory creates many obligations that shareholders must take into consideration in order to save their firm. The agency cost is one of these assumption that is created in order to show the types of expenses that the firm should spend. It is divided into three types: expenditures to monitor managerial activities such as audit cost. Nowadays, auditing becomes one of the most important business issues that every organization especially the banking sector should apply. For example, due the agency problem, the Lebanese central bank oblige all the banking sector to have two independent big four auditors in order to assure all the financial information that is created by the managers. The second cost is the cost of structuring the organization such as appointing outside members to the board of directors or reengineering the organizational chart in the firm. To have a well design organization charts in a firm is very effective since it helps to allocate the jobs in a way that can m aximize efficiency and get rid of relation problems. The third cost is the opportunity cost that is created by the owner such as voting in specific issues and limit the ability of the managers regarding the actions that advance the shareholder wealth. For this purpose, many mechanism are introduced to the business world that can minimize those costs and solve the agency problems. First, compensation plan can be applied for the mangers such owning a stock in the firm and stock price changes. In this case, managers I obliged to work efficiently for the sake to increase the financial wealth to increase his or her stock value. Another extreme, is to have in the firm stockholders that have a theory X management style which means that they will manage each step or decision that is taken by the managers, but this would be costly and inefficient. The best solution to have a compensation that is based on performance and some monitoring should be undertaken. Moreover, the owner can create a s ense for managers that if they make any wrong decision that affect the firm negatively, they will be fired or replaced by another manager. However, this solution is somehow risky in a case that creates problems in the workplace. For example, many publicly traded companies are creating shares based on performance levels which are shared given for the mangers based on performance which are explained by many financial measures such as earing per share, return on assets, and return on equity etc†¦ If the performance is below the level, the shares will be less than 100 percent. These incentives are created for two main goals. First, they offer executives to take action that will increase shareholder wealth. Second, these types of plans help the firm to retrain managers that can have confidence to risk their financial wealth based on their abilities which can lead to better performance.

What Made Britain so Different from the Rest of Europe Before 1850

What made Britain so different from the rest of Europe before 1850? – By 1850, Britain had changed in a number of social and economic ways, for a variety of reasons, primarily the industrial revolution as the historians O’Brien and Quinault argue that Britain ‘represented a potent â€Å"example† for Western Europe and the United States of what could be achieved’ highlighting British superiority and influence. The consequences of this momentous event can still be seen in Britain and around the world today due to the technological and scientific discoveries and innovations of the eighteenth and nineteenth centuries.The development of British industry consequently led to significant differences between Britain and other European countries such as France and Portugal, however, the industrial revolution was not the single contributing factor to these differences. The expansion of the British Empire changed British society and ultimately led to greater pow er and influence over Europe, alongside important events such as the Napoleonic Wars, which in turn led to naval and military supremacy, as Britain were affected less negatively in comparison to other European countries.This essay will argue that Britain was different to Europe before 1850 as a result of the industrial revolution and its consequences, the expansion of the empire and the Napoleonic Wars. It can be argued that Britain was different from the rest of Europe before 1850 as a result of the industrial revolution; however, one may argue that this was the case before the advent of industrialization.This can be attributed to the fact that the Industrial Revolution occurred primarily in Britain, rather than in any other European country, emphasising that there were significant differences in order for this to occur. Many historians will argue that Britain was the ideal nation for the events of the Industrial Revolution to occur in as the Agricultural Revolution had preceded it , therefore, productivity of the land and the labour force had increased, unlike in Europe.Furthermore, historians will argue that Britain initiated the revolution due to the fact that they ‘were already a long way ahead of her chief potential competitor in per capita output and trade’, which arguably can be attributed to their naval supremacy over Europe. Additionally, although debatable, it is suggested by the historian Mokyr that before 1780 ‘Britain was comparatively peaceful’ as the nation was politically and socially stable, as people respected institutions and the laissez faire government worked effectively, resulting in a suitable nvironment for industrial and economic growth . Moreover, Mokyr suggests that there were a number of other ‘British advantages’ such as the large amount of iron and coal available to them, alongside the geography of being an island, which decreased the likelihood of foreign invasions. Therefore, it is clear th at Britain was different from Europe before the Industrial Revolution occurred as they possessed significant political, social and economic advantages.Moreover, the Industrial Revolution is certainly a monumental event in causing substantial social, economic and political change, resulting in differences between Britain and Europe. In terms of positive social change, there was an ‘overwhelming transformation of social life in both industry and agriculture’ as the Industrial Revolution was extremely profitable for the middle class, in comparison to that of the nobility, as many workers gained employment in factories as new technology resulted in less need for labour in agriculture.Furthermore, urbanisation transformed cities such as Manchester, by dramatically increasing population from ‘40,000 in the 1780s to 142,000 by 1831’. Additionally, the life expectancy of children increased-the percentage of children born in London who died before the age of five de creased from 74. 5% in 1730–1749 to 31. 8% in 1810–1829, highlighting that healthcare in Britain had improved more so than in Europe. Not all social consequences of the Industrial Revolution were positive however.Child labour during this period was a serious problem-children as young as 4 were expected to work in factories in dangerous conditions with low pay. Working conditions were not only problematic for children, but also for adults, illustrated by Engels, who argues that the ‘industrial epoch’ had created ‘filth, ruin and uninhabitableness, the defiance of all considerations of cleanliness, ventilation, and health’ highlighting the unsanitary and unsafe surroundings. However, the government attempted to solve this problem with the Factory Acts of 1833.Housing also became a problem as many poor people lived in tiny houses, with extremely bad sanitation, which in turn led to tuberculosis, cholera, typhoid and lung disease. However, while t his is true, in the context of the time, the workers and middle class did benefit greatly from the Industrial Revolution in some way, as wages increased and ‘widespread poverty and constant threat of mass starvation†¦lessened, [and] overall health and material conditions of the populace clearly improved’.Therefore it is clear that Britain was different in social terms as a result of the Industrial Revolution to Europe due to urbanisation, more jobs, a population increase and better health care. Additionally, Britain can be seen to be different from Europe in 1850 as a result of the economic consequences of the Industrial Revolution, which brought about a ‘modern economy’. The economy had already been transformed by the agricultural revolution as the labour force had grown, which in turn had increased productivity creating larger profits, highlighted by the fact that the male labour force in industry in Britain in 1840 was 47. % in comparison to Europeà ¢â‚¬â„¢s 25. 3%. Moreover, the creation of the factory had improved production levels and therefore decreased production costs, which bettered the economy, unlike in Europe where agriculture still played a dominant role. While it is true that the British economy did improve during the Industrial Revolution, the extent of it is often exaggerated. The rate of growth of income per capita between 1760 and 1800 was at ‘0. 2% a year’ and from 1800 to 1830 increased only to ‘0. 5%’.However, while this is true, the economic effects of the Industrial Revolution meant that ‘Britain in 1850 had the highest income level in the world’ and became ‘the leading economic and technological nation†¦with all the political prestige and power that came with that’. Therefore, it is clear that there were distinct economic differences between Britain and Europe as a result of the Industrial Revolution, as Britain’s economy was based on industry , whereas many European countries such as France had not industrialised their economy effectively and were still reliant on agriculture.In addition to this, a fundamental difference between Europe and Britain even before 1850, was the expanding British empire. The strength and scale of the empire meant that Britain had better trade links with America, the West Indies and India. Thus, they had the advantage of having access to a number of raw materials and exports from these countries that were not readily available to the rest of Europe.Although it can be argued that other European countries such as France, Spain and Portugal had colonies within America and so could therefore also trade with their colonies, it is evident that that the ‘global trade network [was] dominated by British shipping’ as Britain’s naval supremacy made importing and exporting manufactured goods much easier and more profitable, bettering their own economy in comparison to that of Europe. Mo reover, Britain were able to expand their empire and their trade links as they did not engage in wars commonly, on a scale that France and other European countries did, such as in the case of the Napoleonic Wars.Although Britain did involve themselves in the Napoleonic Wars, their military resources were much better than those in Europe and so they were less affected by its Therefore, it is clear that the scale of Britain’s empire in comparison to that of other European nations was much larger, which in turn led to greater differences in trade, whilst their military supremacy made recovering from wars much easier. In conclusion, it is certainly clear that there were fundamental differences between Britain and Europe before 1850, many primarily as a result of the industrial revolution.Whilst Britain were different to Europe before the beginning of industrialization, shown by the fact that the revolution occurred primarily in Britain, rather than in any other European country, it is clear that the consequences of the industrial revolution shaped British society, and the world, with its effects still being seen today. Although the empire and Napoleonic Wars were advantageous to Britain before 1850 in improving trade links and maintaining naval and military supremacy, the effects of the revolution made Britain superior to other European nations in political, social and economic terms.Therefore, it is clear that the differences between Britain and Europe occurred as a result of the expanding empire, effects of the Napoleonic Wars, but primarily was due to the social and economic effects of the industrial revolution. Bibliography * Asa Briggs, ‘Manchester, Symbol of a New Age’, Victorian Cities. (New York and Evanston: Harper and Row, 1970) pp. 88-138. * N. F. R. Crafts, The Industrial Revolution: Economic Growth in Britain, 1700-1860. * Friedrich Engels, The Condition of the Working-Class in England in 1844, (Cosimo Inc. , 2009) * Valerie Hansen , Kenneth Curtis, Kenneth R.Curtis, Voyages in World History, Volume 2, (Cengage Learning, 2003) * Eric Hobsbawm, History of Civilisation: The Age of Revolution, Europe 1789-1848 (London, 1969) p. 29. * Joel Mokyr, ‘The Industrial Revolution’, The Oxford Encyclopaedia of Economic History, (Oxford University Press, 2003) vol. 3, pp. 49-56. * Patrick O’Brien and Roland Quinault, The Industrial Revolution and British Society (Cambridge University Press, 1993) p. 231. * Glenn Porter, ‘Industrial Revolution. ’, Microsoft Encarta Encyclopedia. (Microsoft Corporation, 1999) ——————————————– [ 1 ].Patrick O’Brien and Roland Quinault, The Industrial Revolution and British Society (Cambridge University Press, 1993) p. 3. [ 2 ]. Eric Hobsbawm, History of Civilisation: The Age of Revolution, Europe 1789-1848 (London, 1969) p. 29. [ 3 ]. Joel Mokyr, â₠¬ËœThe Industrial Revolution’, The Oxford Encyclopaedia of Economic History, (Oxford University Press, 2003) vol. 3, pp. 49-56. [ 4 ]. Joel Mokyr, ‘The Industrial Revolution’, The Oxford Encyclopaedia of Economic History, (Oxford University Press, 2003) vol. 3, pp. 49-56. [ 5 ]. Patrick O’Brien and Roland Quinault, The Industrial Revolution and British Society (Cambridge University Press, 1993) p. 31. [ 6 ]. Asa Briggs, ‘Manchester, Symbol of a New Age’, Victorian Cities. (New York and Evanston: Harper and Row, 1970) pp. 88-138. [ 7 ]. Friedrich Engels, The Condition of the Working-Class in England in 1844, (Cosimo, Inc. , 2009) [ 8 ]. Glenn Porter, ‘Industrial Revolution. ’, Microsoft Encarta Encyclopedia. (Microsoft Corporation, 1999) [ 9 ]. Joel Mokyr, ‘The Industrial Revolution’, The Oxford Encyclopaedia of Economic History, (Oxford University Press, 2003) vol. 3, pp. 49-56. [ 10 ]. N. F. R. Crafts, The Industrial Revolution: Economic Growth in Britain, 1700-1860 [ 11 ].Joel Mokyr, ‘The Industrial Revolution’, The Oxford Encyclopaedia of Economic History, (Oxford University Press, 2003) vol. 3, pp. 49-56. [ 12 ]. Joel Mokyr, ‘The Industrial Revolution’, The Oxford Encyclopaedia of Economic History, (Oxford University Press, 2003) vol. 3, pp. 49-56. [ 13 ]. N. F. R. Crafts, The Industrial Revolution: Economic Growth in Britain, 1700-1860. [ 14 ]. Joel Mokyr, ‘The Industrial Revolution’, The Oxford Encyclopaedia of Economic History, (Oxford University Press, 2003) vol. 3, pp. 49-56. [ 15 ]. Valerie Hansen, Kenneth Curtis, Kenneth R Curtis, Voyages in World History, Volume 2, (Cengage Learning, 2003) p. 664.

Case Scenarios

Read the following scenarios. Answer, in a 50- to 100-word response, each of the following questions: Scenario 1 Sophia has been removed from her family and placed Into foster care for the second time In the last 2 years due to her mother's ongoing substance abuse. Sophia has missed many days of school and often comes to school dirty and wearing clothes from the day before. Sophia's mother does not think she has a problem and blames the system for once again taking her daughter. 1 . What can a human service professional do to help this family?We all may have a family member that have the same problem. Human service can help Sophia's mother by getting her help for substance abuse. Her mother may not feel that she needs help or have a drug problem. I f the daughter is coming to school dirty and missing school the teacher can see that there is a problem. She can report this problem to Human Services and they can place Sophia in foster care until her mother is able to care for her proper ly. 2. Sophia's mother is thinking that child protective services as the worst people for taking her daughter for the second time.The mother needs to get help for her substance abuse and prove that she can be healthy and stable for her daughter, then she could be allowed to have her daughter back. Scenario 2 John has been homeless for most of his adult life. He Is often seen on the medians of busy Intersections asking for food and money or wandering through the park talking to himself. John used to seek housing In a homeless shelter but often chooses to sleep In the local park. During the winter, the local homeless coalition attempts to talk to John about staying In the shelter but he refuses.Staying out In the cold has deed John to being hospitalized on several occasions, but he maintains that he Is better off without anyone's help. 1. We all may have a family member that have the same problem. Human service can help Sophia's mother by getting her help for substance abuse. Her moth er may not feel that she needs help or have a drug problem. I f the daughter Is coming to school dirty and mammals school the teacher can see that there is a problem. She can report this problem to Human Services and they can place Scenario 3 Juan often runs away from home because his parents constantly fight and often blame him for their issues.Juan runs away for 2 to 3 days at a time and will do this at least once a week. When he is at home, he typically does not follow the rules and will yell at his parents and siblings. Juan has a history of defiant behavior, but his home environment has often been chaotic. Jean's parents have been through family counseling, but they feel it was not helpful and are reluctant to do it again. Juan sometimes will run to a local group home that takes in runaway youth. 1 . If you were a counselor at the group home, how might you work with Juan to get him to stop running away from home so that he is not sleeping on the streets? If I ere a counselor, I would arrange an in-home sit down with the child, and the parents, I would find out the details of which needs are not being met in the home that was constantly causing the arguing, and try to find a solution(s) to the families problems. Next I would arrange for weekly counseling sessions for the parents and the child to try and see if we begin to meet the family needs if then it would stop the arguing which would then stop the child from being defiant and running away weekly, and bring peace and happiness in the home. . How might you try to work with the family even though they have participated in Emily therapy previously and did not find it effective? * Next I would arrange for weekly counseling sessions for the parents and the child to try and see if we begin to meet the family needs if then it would stop the arguing which would then stop the child from being defiant and running away weekly, and bring peace and happiness in the home.I know that they said it didn't work previous ly but I would give it a try Just to try and help them, I would address the way that the previous counselor went about it and try a different approach to make the counseling for the family work, legalizing that not all methods work for all families, but I would try different techniques or ask the family some things that they like to do together and try to incorporate that into the counseling to make for a happier time in the home.As a counselor I would have group sessions with the family and private sessions with the child with the parent's permission as well. The purpose of the group sessions would be to validate that the family does not blame the child for their problems. The purpose of the private sessions would be to allow the child to open up and talk about their true feelings. Through being an attentive listener for the family and advising the parents to keep an open and stable relationship with their child.

Summary Of 12 Angry Men By Reginald Rose - 1681 Words

Joshua Bennett American Literature 7-27-14 12 Angry Men by Reginald Rose Plot Development of Act 1 In Act 1 of 12 Angry Men, all the jurors were introduced and the trial was revealed to us. There were twelve jurors that were trying a teenage boy who was accused of murdering his father. The scene was set in a jury room in the New York City Court of Law on a hot summer day in 1957. Before the voting started, the judge stated that for the boy to be found guilty and receive the death penalty, there must be a unanimous vote for guilty. The Foreman of the jury took the first vote and all but one voted for guilty, the eighth juror. After the vote, the other jurors were frustrated that this one person did not vote guilty. When the eighth juror explains why he voted not guilty, all the other jurors agreed to explain why they voted guilty. As they went along, they all had the same story that was based off of no evidence except for the prejudice testimonies and their own personal feelings. For example, the third juror who had a son said, â€Å"When he was nine he ran away from a fight. I saw him. I was so ashamed I almost threw up... When he was sixteen we had a battle. He hit me in the face. He’s big, y’know. I haven’t seen him in years. Rotten kid.† (Third Juror, pg. 18). As the trial moved on, more and more jurors changed their mind and realized that the eighth juror was right and the evidence that the jurors are going off of lead them to have a reasonable doubt. For example, theShow MoreRelatedJuror Eight In Twelve Angry Men By Reginald Rose776 Words   |  4 PagesPicture a room with a large table in the center. There is a door, but it is locked. Filling up all the twelve seats around the table, there are twelve men: jurors debating the murder of a man living near the el tracks. The man’s son is his alleged killer, but one juror is not convinced. This image is from Twelve Angry Men, a play written by Reginald Rose. The Eighth Juror is being fair to the child, explaining how there are many â€Å"what-i fs† in the situation. Juror Eight brings up many different piecesRead MoreThe Twelve Angry Men Juror 3 and Juror 8 Comparing Essay1919 Words   |  8 PagesComparison essay comparing Juror 3 and Juror 8 What are some similarities between Jurors 3 and 8? What about differences? Oh gosh, its been years since Ive seen the movie (didnt read the play).   Okay,  Juror  #3 is the angry father, and Juror #8 is the guy who stands alone in the INNOCENT vote, right? I suspect the similarities are easier to find by reading the play because the movie really shows their contrasts. There is one similarity in that when they really believe something, theyRead MoreFilm Analysis Of 12 Angry Men1946 Words   |  8 PagesINTRODUCTION: 12 Angry Men is a 1957 American courtroom drama film adapted from a teleplay of the same name by Reginald Rose. Written and co-produced by Rose himself and directed by Sidney Lumet, this trial film tells the story of a jury made up of 12 men as they deliberate the guilt or acquittal of a defendant on the basis of reasonable doubt, forcing the jurors to question their morals and values. In the United States, a verdict in most criminal trials by jury must be unanimous. The film is notableRead MoreStephen P. Robbins Timothy A. Judge (2011) Organizational Behaviour 15th Edition New Jersey: Prentice Hall393164 Words   |  1573 PagesManager, Production: Lisa Rinaldi Full-Service Project Management: Christian Holdener, S4Carlisle Publishing Services Composition: S4Carlisle Publishing Services Printer/Binder: Courier/Kendallville Cover Printer: Courier/Kendalville Text Font: 10.5/12 ITC New Baskerville Std Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Copyright  © 2013, 2011, 2009, 2007, 2005 by Pearson Education, Inc., publishing