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Give an example of a possible agency conflict between inside owners/managers and outside shareholders. What could be done to mitigate this issue?
Your journal entry must be at least 200 words in length. No references or citations are necessary.
Unit V Essay
Instructions
External Financing
We examined two important topics in finance during this unit: external financing requirements and agency conflicts. Address the prompts below in your essay.
Include an introduction that summarizes the main points with an example.
Critically reflect on the importance of external financing requirements. What key factors must be considered when determining external financing requirements?
Briefly describe the types of agency conflict and provide an example of at least one of the types of agency conflict to support your response. +500 WORDS include references
Introduction
External financing is essential for a business to grow and develop, as often times there are not enough internal resources available. External financing involves acquiring capital from external sources such as banks, investors, or government programs to fund a business’s operations and growth. When considering external financing requirements, it is important to consider various factors that can affect the success of the company in order to determine what type of funding will be necessary. Additionally, agency conflicts arise when there is a discrepancy between the interests of different stakeholders involved in an organization. This essay will discuss the importance of external financing requirements with key considerations and provide examples of possible types of agency conflict and how they can be resolved.
Importance of External Financing Requirements
Securing adequate funds for a business’s needs is essential for its longevity and growth; without sufficient funding, businesses cannot maintain operations or expand their scope. It is important for companies to understand their own financial needs before seeking out external financiers or investors so that they can accurately project what kind of loan or investment amount they need in order to reach their desired objectives (Jain & Singh 2018). Furthermore, businesses must also be aware that some forms of debt have more restrictive terms than others which could limit financial flexibility (Jain & Singh 2018). Lastly, it is imperative for companies seeking out additional capital to consider both short-term goals as well as long-term strategies when making financial decisions so that action plans support sustainable development within the company (Khan 2017).
Types Of Agency Conflict And Resolutions
Agency conflicts may arise when there are discrepancies between different stakeholder interests within an organization including shareholders, management and employees (Weber et al., 2009). For example, managers may seek short-term profits while shareholders seek long-term profits due to incentives associated with them (Weber et al., 2009). To mitigate this issue one solution could involve implementing policies that focus on corporate social responsibility which provides more equitable outcomes among stakeholders while promoting profitability at the same time (Khan 2017) . Another potential resolution would involve bylaws where decision makers must act in accordance with shareholder preferences instead solely relying on managerial discretion which ensures greater alignment between shareholder goals and corporate strategy (Weber et al., 2009).
Conclusion
In conclusion securing adequate funds through external means has become increasingly important due to increasing competition amongst industries. Companies must assess their own financial needs before seeking outside investor in order ensure successful financial outcomes over time; furthermore policy makers should establish regulations focused on corporate social responsibility instead solely relying on managerial discretion thus providing greater equity amongst stakeholders while at same time promoting profitability within organizations.