Agency Theory a
Module Title: Finance Principles
Module Code: 5AC002
Module Leader: William Coffie
Student Name and Number:
Qianhui MA(1223583)
Date of Submission: 14th Jan 2013
Words: 1441
Agency Theory and Corporate Governance
Introduction
In 26th February 1995, the Barings Bank, one of the oldest banks of the United Kingdom was declared bankrupt. Nick Leeson, the trader of the bank in Singapore had lost $1.4 billion on derivatives trading while the bank reported capital was only about $600 million. The Bank of England had to close Barings, also known as the Queen's bank since it was used by Elizabeth II. Barings Shareholders lost $1 billion. The Barings Bank collapse is an example of what can go wrong when a bank fails to properly supervise its employees and their trading practices (Wiley 2010). It had shown the significant role of managers and shareholders. The reason for the bank bankrupt is the shareholder mismanagement and the manager overconfidence.
Accordingly, the purpose of this essay is analyzed the agency theory and corporate governance in the company. It mainly consists two sections to conduct analysis. The first section contains the relationship between the shareholders and the managers of the firm (Block and Hirt 2008). And the second one is exploring the corporate governance has become vital corporate issue that needs to be effectively addressed (Singh and Davidson 2001; McKnight and Weir 2009; and Ward and Filatotchev 2009).
Main section
As cited by Cheffines and Bank (2009), the foundation of agency theory could go back to Berle and Means (1932) and Fama and Jensen (1983a). Their studies discuss the notion of the separation of corporation’s owners (principals) and its manager (agents) which is due to the fact that the owners delegate their responsibilities for control to managers who will actually manage the company. Thus the separation between the functions of decision and control will generate conflicts of interest and a
Module Code: 5AC002
Module Leader: William Coffie
Student Name and Number:
Qianhui MA(1223583)
Date of Submission: 14th Jan 2013
Words: 1441
Agency Theory and Corporate Governance
Introduction
In 26th February 1995, the Barings Bank, one of the oldest banks of the United Kingdom was declared bankrupt. Nick Leeson, the trader of the bank in Singapore had lost $1.4 billion on derivatives trading while the bank reported capital was only about $600 million. The Bank of England had to close Barings, also known as the Queen's bank since it was used by Elizabeth II. Barings Shareholders lost $1 billion. The Barings Bank collapse is an example of what can go wrong when a bank fails to properly supervise its employees and their trading practices (Wiley 2010). It had shown the significant role of managers and shareholders. The reason for the bank bankrupt is the shareholder mismanagement and the manager overconfidence.
Accordingly, the purpose of this essay is analyzed the agency theory and corporate governance in the company. It mainly consists two sections to conduct analysis. The first section contains the relationship between the shareholders and the managers of the firm (Block and Hirt 2008). And the second one is exploring the corporate governance has become vital corporate issue that needs to be effectively addressed (Singh and Davidson 2001; McKnight and Weir 2009; and Ward and Filatotchev 2009).
Main section
As cited by Cheffines and Bank (2009), the foundation of agency theory could go back to Berle and Means (1932) and Fama and Jensen (1983a). Their studies discuss the notion of the separation of corporation’s owners (principals) and its manager (agents) which is due to the fact that the owners delegate their responsibilities for control to managers who will actually manage the company. Thus the separation between the functions of decision and control will generate conflicts of interest and a