Corporate Financing and Human Behavior in Finance part 2
Ethical behavior is a necessary condition for shareholder wealth maximization as opposed to profit maximization. Do you believe the goal of the firm is always consistent with ethical considerations? What would you do if you could implement an unethical (and undetectable) action that would increase firm value? Hint: Review Agency Theory below and conduct external research (as applicable).
Influence of Agency Theory
A literature review of certain aspects of agency theory (Ezelle, 2011) contends the following:
Lessening the effect of agency problems can be accomplished by offering incentives to the agent to align actions comparable to what is desired by the principal or by monitoring the behavior of the agent. Either effort to mitigate the agency problem has agency costs which are classified as bonding costs, agency costs, or residual costs (Eisenhardt, 1989; Jensen