1-14 Financial Markets –Agency problems ( 代理人問題 ): Conflicts of interest between managers and stockholders Empire building, avoid risky projects, or overconsume luxuries –All these suboptimal decisions hurt the interests of shareholders Solutions: –Performance-based compensation plans (link the manager's income with the performance of the stock price) –Penalty for the poor performance in stock price (force out or fire the manager) –Specialist monitoring (analysts, fund managers, or banks) –Takeovers by other firms (replace the poor-performing managers to enhance the value of the firm)
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