MONITOR AND CONTROL IN COMPANIES: AN AGENCY THEORY APPROACH

The aim of this paper is to survey what are the potential benefits and drawbacks of the most common mechanisms a shareholder can use to monitor and control a manager according to the agency theory. Despite the wide array of policies and instruments shareholders have at their disposal, all the mechanisms exhibits inherit flaws which limit their applicability. From the powerful boards to the ownership structure, management compensation plans, capital structure and market for corporate control, all are able to some degree to mitigate the conflict between shareholders and managers but raise others dilemmas regarding applicability and effectiveness, inquiring additional consideration. Ultimately there isn’t a single solution for every environment but rather a specific mix according to the specific environment of each company, so policy makers need to take into consideration all the characteristics of the firm and only after issue recommendations, norms and laws.