TCDN agency prob(1)

Agency problem


What is agency problem?
• The primary agency relationships in business are
those between stockholders and managers
• Agency problem occurs where there is conflict of
interest between stockholders and managers
– The shareholders demand and receive high cash
returns on their investment (wish to maximize
share’s value)
– Managers desire to maximize profit or their
personal utility.


When there is agency problem?


Self-interested behavior
• Agents have the ability to operate in their own
self-interest rather than in the best interests of
the firm because of asymmetric information
• Outside investors recognize that the firm will
make decisions contrary to their best interests.
Accordingly, investors will discount the prices
they are willing to pay for the firm's securities.


Interest conflicts
1. Selling and buying shares for managers’ own
interest, maximize their personal utility, have

personal goals that compete with the owner's
goal of maximization of shareholder wealth.


Interest conflicts
• Cases: (moi case lam 1 slide)
+ KinhDo gave loans to managers without passed
resolution of shareholders
+ Domesco net profit reduced by 2% but managers
asked for bonus of 15% net profit
+ PetroVN transportation: Sister of Board Director
member sold stocks without publishing info


Interest conflicts
2. Reducing production cost to maximize profit,
hurting sharevalues


KinhDo’s case
Case:
+ KinhDo cakes was found to be spoilt => probably
due to low standard production
(aiming to increase profit but finally harm firm’s
value
Published 27 April 2009
 stock price reduced the following days


KinhDo’s case

Interest conflicts
3. Action the interest of major shareholders,
regardless of minority shareholders


PLPC’s case
Case:
+ PLPC: financial management and large
transactions with EVN might raise some minority
shareholders’ concerns, while it is still bearing a
huge loan in JPY, hurting shareholder value.


Đính kèm 4 slide đã làm về case này
EVN and EVNFC are 2 major shareholders of PLPC,
take control of most management activities of
PLPC
=> financial management and large transactions
with EVN might raise some minority
shareholders’ concerns


Đính kèm 4 slide đã làm về case này
• PPC spends large amount of cash in the other
subsidiaries of EVN or gives loans to EVN at low
interest
- Invested 100 billion in EVNFC bonds in 2010
- Gave loan of 350 billion to EVN

- Invested 70 billion in International EVN
• While bearing a huge loan in JPY, hurting
shareholder value. (Company suffered from a
loss of VND1,000 billion due to exchange rate)


Statement of Cash Flow (cont.)

=> Financing activities generated deeper and
deeper loss, affecting net income.


Revenue & Profit growth