Anonymous:Hi, I must write an assignment in my finance course. Now I am wondering what is meant by "theoretical relevance"? One topic is the Principal-Agent Problem.
Here is the task:
Make a list of the five most important topics you have learned in this course. These could be new concepts, theoretical insights, practical applications or otherwise. For each item (5 topics) on your list discuss each of the following points:
1. Topic description
2. Theoretical relevance
3. Which tasks in the course deal with the topic. What problem statement can you distil from these tasks?
4. Which part of the literature is relevant for this topic? Include a short summary of the literature on this topic
5. + Very important!
For each topic find a related real-life example to highlight the issue that took place during 2008. For instance, use a newspaper article to discuss the practical relevance of the theoretical topic you described before. Make sure you attach a hardcopy of the event (newspaper article etc.) to your assignment.
So far I have written:
a) Topic description:
The Agency Problem refers to a conflict of interest arising between shareholders (principals) and management (agents) because of different goals of each party. Due to the separation of ownership and control in a corporation, agents have little incentive to work in the interest of the principals if it is against their own self-interest.
d) Summary of relevant literature:
In a corporation, direct control and ownership are often separate. Hence, direct control is possessed by the board of directors and the chief executive officer (CEO) rather than by the owners.
The board of directors is a group of people who have the ultimate decision-making authority in the company. They get elected by the shareholders. Normally each share of stock gives a shareholder one vote in the election. The board of directors decides how the corporation should be run, how management is compensated and also monitors the performance of the corporation. The CEO is charged with running the corporation by complying and instituting the rules set by the board of directors. Most corporations have thousands of owners (shareholders), each having different interests and priorities. Due to the separation of ownership and control in a corporation, principals and agents pursue different interests. Thus agents have little incentive to work in the interests of the principals when this means working against their own interests. This is called the principal-agent or agency problem.
(By the way, your "Summary of relevant literature" section doesn't seem to have anything to do with summarising literature. Possibly you just got the heading in the wrong place.)
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