Business, 19.03.2020 05:18, claudialopez093

You are the CEO of a company and you are considering entering into an agreement to have your company buy another company. You think the price might be too high, but you will be the CEO of the combined, much larger company. You know that when the company gets bigger, your pay and prestige will increase. What is the nature of the agency conflict here and how is it related to ethical considerations?

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answered: Taylor129

Group of choices:

A. There is an ethical dilemma when the CEO of a firm has incentives that are opposite to those of the shareholders.

B. There is a legal issue when the CEO of a firm has incentives that are opposite to those of the shareholders.

C. In this case, you (as the CEO) have an incentive to potentially overpay for another company (which would be damaging to your shareholders) because the value of the combined company will improve.

D. In this case, you (as the CEO) have an incentive to potentially overpay for another company (which would be damaging to your shareholders) because your pay and prestige will improve.

The correct answer is A. There is an ethical dilemma when the CEO of a firm has incentives that are opposite to those of the shareholders.

D. In this case, you (as the CEO) have an incentive to potentially overpay for another company (which would be damaging to your shareholders) because your pay and prestige will improve.

Explanation:

The agency conflict arises when there is a gap between the owners of a company and the management of the management, since it determines that the interests of the shareholders and that of the managers are different. In the case that arises, the CEO evidently becomes a top-notch executive of the combined company, and will have some additional benefits to those that the shareholders may have (mainly return on their investments). At this point an ethical dilemma arises, since the interests of a person cannot overlap with those of a particular organization, and in the event of a purchase being made from the company, it must be ensured that the levels of profitability of the shareholders will increase over time.

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