MANAGERIAL INCENTIVES AND CORPORATE GOVERNANCE

Abstract

Due  to  its  promotion  of  effective  contracting,  the  modern  corporation  is  an  effective  tool  for managing large-scale production. Combining the resources of numerous dispersed investors with the expertise of a seasoned management team is made easier by the corporate form of organisation.Consequently, the capital providers do not even need to be familiar with or capable of managing the company. However, there might be an incentive mismatch and associated agency costs when one party gives another party the power to make decisions on its behalf. In other words, there is a chance that the management and ownership of a company have different objectives when they are separate entities. The term "agency problem" describes the discrepancy between the owners' and management's objectives (Thomas & Shughart II, 2013). Aligning managers' incentives to ensure they act in the best interests of owners rather than striving to achieve their objectives is the primary challenge of corporate governance. Examining the relationship between corporate governance and managerial incentives has been my goal.