• Incur monitoring expenditures
Firms incur expenditure on audit and control procedures aimed at assessing and limiting managerial behaviour to those actions that sub serve the interest of shareholders.
• Incur bonding expenditures
Firms may seek protection against dishonest acts of managers by obtaining a fidelity bond from a third party bonding company which agrees to compensate the firm up to a certain amount if a certain manager’s dishonest acts entail financial losses to the firm.
• Structuring expenditures
To promote greater congruence between the goals of the managers and shareholders, managers are offered monetary and stock incentives such as stock options and performance shares.
• Incurring opportunity costs
The structures of a company are arranged in a manner that decision making is slower and therefore firms may not be able to seize profitable opportunities because of bureaucratic procedures and control mechanisms that stifle managerial initiatives.
Kavungya answered the question on March 30, 2022 at 07:04
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