The Modern Corporations Must Be Characterized As A Nexus...

The modern corporations can be characterized as a nexus of contracts (Jensen and Meckling, 1976). Among all the contracts in the firm, the agency contract entered, when a firm hired a chief executive officer (CEO), is of the most importance as CEO is the agent who acts on behalf of the shareholders to manage the firm. This contract tends to align the interest of shareholders and managers by basing managerial compensation on performance. Although the firm try to fulfil every aspect of terms in the employment agreements to guide the appropriate actions of managers, these contracts are incomplete as it is either impossible or prohibitively costly to fully observe manager actions. The imperfect characteristic of contract thus creates opportunities for the agent to â€Å"game the system† (Prendergast 1999). Groen-Xu (2013) indicates that the role of contract is precisely a formalization of the evaluation period, especially the final year of contract, where more weights are put on evaluating the performance. Thus, managers have strong incentives to engage in strategic behavior to influence the evaluation process during the contract expiration, when their performance is being assessed and their contracts are being renegotiated. The better performance result can impress and influence board of directors and shareholders, thus help CEO with their tenure renew and get improved contract terms in the new employment agreement. However, little is known about how CEOs respond to impendingShow MoreRelatedCorporate Governance And Employer Employee Relationship3217 Words   |  13 Pagesfirm. The modern firm has been characterized by the movement of international, financial markets into the structure of industry of the 20th century and a transformation of the importance of human capital. Introduction: The objective of the firm is to produce the collective action needed to increase shareholders’ profits. To earn a profit in the long run, naturally, the needs of a broad range of stakeholders, including lenders, employees, customers, suppliers and community, must be met, butRead MoreDeterminants Of Ceo Compensation : The Case Of Vietnamese Listed Enterprises9564 Words   |  39 Pagescompensation research (Mirrless, 1976; Jensen Meckling, 1976; Holmstrom, 1979; Tosi Gomez-Mejia, 1994). This theory suggests that managerial compensation should be directly tied to firm performance in order to motivate a firm’s managers to act in the best of interests of the firm’s shareholders (Gomez-Mejia and Wiseman, 1997), and also to solve or at least mitigate the conflict of interests between owners and managers (Tosi Gomez-Mejia, 1994; Jensen Meckling; 1976). However, there is still haveRead MoreThe Effects of Ownership Structure, Board Effectiveness and Managerial Discr etion on Performance of Listed Companies in Kenya27922 Words   |  112 Pages Significance of the Study 14 CHAPTER 2: LITERATURE REVIEW 17 2.1. Theories of Corporate Governance 17 2.2. Agency Theory as an Analytical Framework 22 2.3. Traditional Approach to Corporate Governance 28 2.4. Modern Perspective on Corporate Governance 29 2.5. Corporate Performance 31 2.6. Ownership Structure and Corporate Performance 36 2.7. Board Effectiveness and Corporate Performance 42 2.8. Managerial Discretion and CorporateRead MoreContemporary Issues in Management Accounting211377 Words   |  846 Pagesagreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloguing in Publication Data Data available Typeset by SPI Publisher Services, PondicherryRead MoreStrategic Management and Information Systems19841 Words   |  80 Pagescustomers better. 3.1 ORGANIZATIONS AND INFORMATION SYSTEMS nformation systems and organizations influence one another. Information systems are built by managers to serve the interests of the business firm. At the same time, the organization must be aware of and open to the influences of information systems to benefit from new technologies. The interaction between information technology and organizations is complex and is influenced by many mediating factors, including the organization’s structure