Question

Question 2. Explain why the structure of executive compensation contracts should minimise agency costs and how...

Question 2.
Explain why the structure of executive compensation contracts should minimise
agency costs and how information asymmetries can lead to moral hazard and hidden actions.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Executive compensation contract is different from other compensation contracts. In this form of compensation contract the executives pay is heavily based on the actual results. If a company underperforms, then the executives typically receive a smaller amount of their potential pay. Conversely, if the stock overperforms then the executives receive larger payout. This helps to reduce agency problem as the executives are not overpaid. This keeps the shareholders calm and not get agitated, and eventually reduces agency problem.

Asymmetric information means uneven information being provided to different people. This asymmetric information makes the managers do insider trading and also to be dishonest with their profession and the clients. This leads to moral hazard and some unwanted actions in order to make more money.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Explain the meaning of a dual agency 2. Define the law of agency 3. How...
1. Explain the meaning of a dual agency 2. Define the law of agency 3. How can real property become personal property 4. What are trade fixtures 5. Explain the meaning of a power of attorney 6. What are the arguments for Corporate Social Responsibility (CSR) 7. What are the arguments against CSR 8. Are whistleblowers heroes or disloyal employees? 9. Why are philanthropic responsibilities important to the firm 10. What are the existing statutory legal responsibilities of directors with...
Essay question 1-2 paragraphs each please: Use the idea of external costs to explain why some...
Essay question 1-2 paragraphs each please: Use the idea of external costs to explain why some cities have laws against late-night rock concerts.
Question 8: 1. How MNCs Use Forward Contracts to hedge their export? 2. Assume that MENNA...
Question 8: 1. How MNCs Use Forward Contracts to hedge their export? 2. Assume that MENNA Corp. purchased Canadian dollar call option for speculative purposes. If the option is exercised, MENNA Corp. will immediately sell the Canadian dollars in the spot market. MENNA paid a premium of $.02 per unit, with an exercise price of $.72. MENNA plans to wait until the expiration date before deciding whether to exercise the options. Of course, MENNA will exercise the options at that...
1.Explain how an organism like dolly the sheep was cloned. 2. Explain how our dna carries...
1.Explain how an organism like dolly the sheep was cloned. 2. Explain how our dna carries genetic material. Include in the discussion the structure of dna and how science determined complementary " base paring occurs. 3. Explain what a greenhouse gas is and how does it affect the earths temperature. 4. Since earths temperature has a cyclical history of low and high tempatures why do we think it is a problem now. 5. Describe the process by which our dna...
1.Explain why a patient gets thirsty with high levels of sodium. 2.Explain how the afferent arteriole...
1.Explain why a patient gets thirsty with high levels of sodium. 2.Explain how the afferent arteriole being larger than the efferent arteriole assists the urinary system in its function of blood filtering. 23) Which of the following statements is true? (1 point) A) The micturition reflex can be controlled by the internal urinary sphincter muscle B) The parasympathetic nervous system helps control the external urinary sphincter C) The sympathetic nervous system inhibits micturition D) The micturition reflex is voluntary E)...
Define each question as being or not being a statistical question and explain why. (75–150 words...
Define each question as being or not being a statistical question and explain why. (75–150 words or 1–2 paragraphs) Joan Horton is a building contractor whose company builds many homes every year. In planning for each job, Joan needs some idea about the direct labor hours per square foot required to build a home. She has collected sample information on the labor hours for 10 jobs during the past year. (300 words or 4 paragraphs) Job 1 2 3 4...
1. Explain two main reasons why we need to study public finance 2. Distinguish between the...
1. Explain two main reasons why we need to study public finance 2. Distinguish between the “organic view” and “mechanistic view” of the existence of government 3. Explain the concept of market failure and discuss five reasons why there is market failure 4. What is meant by market failure? Identify and discuss four conditions under which the market fails to optimally allocate resources. 5. What is meant by the term government failure and explain five reasons why there may be...
Question 2 Several Governments in CARICOM nations are reluctant to allow the provision of telecommunication services...
Question 2 Several Governments in CARICOM nations are reluctant to allow the provision of telecommunication services by multiple providers. They prefer that a Government Agency provides these services as they believe that consumers will be protected. However the revenue they gain should not be ignored as a possible motive. A recent study found that 8 countries out of the 15 in the CARICOM nations’ have telecommunication services being provided by the a state company. For example, in St. Lucia, De...
Read The Question & Answer. Do You Agree With The Answer? Why Or Why Not. Explain....
Read The Question & Answer. Do You Agree With The Answer? Why Or Why Not. Explain. Question: How does insurance facilitate global supply chain? Answer: To sustain an efficient global supply chain line, where your raw material and components are available on time, insurance on those goods must be applied. All too often, a firm finds it is improperly insured only after a loss, (David, pg. 326 (2017)). Loss can come unexpected and, in my experience, many times the importer...
Answwer the Following Question Why is the film called ESCAPE FIRE? How is the idea of...
Answwer the Following Question Why is the film called ESCAPE FIRE? How is the idea of an “escape fire” a metaphor for the message in the film? What are the proposed “escape fires” for the healthcare crisis in the film? THE PROBLEMS: PAYING MORE, GETTING LESS 75% of the 2.7 trillion dollars we spend on healthcare in this country is spent on treating diseases that are largely preventable, such as heart disease and diabetes. Why do you think this is...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT