Multinational Financial Management (Essay Sample)

Multinational Financial Management Name of Student: University Name: Agency Relationships An agency relationship is an engagement in which a business owner or stockholder grants the powers of decision-making and control of a business establishment to another party. The relationship entails the relinquishing of some critical aspects of the business and services to the third party in a bid to ensure increased production and sustainability in the business (Titman, Keown & Martin, 2017). In the agency relationship where I am the only employee, and my money invested in the business there would not arise any agency conflicts because the entire ownership of the business would be mine. The eventuality of agency conflicts arises when the agent owns less than the whole business portfolio which causes divergent opinions in the critical decision-making process. Hiring additional people to help in the running and management of the business would lead to agency problems due to different levels of stakeholder attachment and involvement in the industry. New employees would come into the market with divergent ideas and opinions about how to drive the company ahead in the competitive environment (Tricker & Tricker, 2015). The decision-making process would, therefore, entail extensive consultations among the new team. Agency problems would slow the process, especially in cases where the parties differ on crucial aspects of the business development process. Types of Agency Conflicts Exposing the ownership of the business by selling stocks to outside investors would cause increased instances of agency conflicts. The move would mean that I own just enough shares to control the company and that would mean that my initial benefits when I was the only employee would diminish. The agency conflict when allocating resources to the various undertakings would entail disagreements on the dividend levels that would satisfy the new investors while maintaining my sense of freedom and luxury (Titman, Keown & Martin, 2017). With more investors owning the business, the individual income would reduce, and that would raise a conflict in my effort to try and retain my high earnings. The decision to raise funds from outside lenders would occasion for agency costs in terms of the high rates of interest from the lenders. The vast costs regarding interests from the loans would be a significant deterrence to the desired levels of organizational development as the company struggles to service the colossal loans (Sanden, 2016). The lenders would mitigate the agency costs by securing the loans given to business through stringent agreements that detail every possible occurrence during the process of servicing the loan. Potential Managerial Behaviors that can harm a Firm’s Value. The decision to transform the company into a publicly traded organization would inhibit some of its progressive agendas. The potential managerial that could harm the...