www.subjectmoney.com please visit our website. Agency Cost is incurred when a conflict of interest arises between the debt holders, management and the stockholders. Agency cost comes in many forms such as perquisites for management like luxury hotels, expensive meals and executive salaries. A CEO who possesses little ownership in the company may not be as diligent as one who earns his or her pay in the form of stocks. Therefore the more equity owned by management, the lower the risk of agency problems and agency cost. In the event of financial distress, agency cost may arise when shareholders act on selfish strategies which hurt the bond holders. This happens because when a company goes bankrupt, the equity is transferred from the shareholders to the bondholders. Therefore shareholders are more likely to take on riskier projects because they are no longer funding these project with their own money. Overall agency cost increases the risk and decreases the value of a firm. It is in the best interest of the bondholders and the shareholders to decrease the risk of agency cost. This is done through tying management’s salary to the performance of the stock, through covenants etc… Examples of agency problems that occur when a company is in financial distress are shown below.
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vmedmedia.com www.caleconnect.org Carladenise Edwards, Ph.D. President and CEO Carladenise Armbrister Edwards, Ph.D., is president and chief executive officer for Cal eConnect. She is responsible for managing the .8 million federal grant California received under the American Recovery and Reinvestment Act to implement health information exchange services (HIE) and policies. Dr. Edwards has an extensive HIE background. Prior to joining Cal eConnect July 1, 2010, she served as Georgia’s health information technology coordinator in her roles as chief of staff and interim commissioner for the Georgia Department of Community Health. In Florida she was founding executive director of the South Florida Health Information Initiative and the first executive director of Florida’s Governor’s Health Information Infrastructure Advisory Board under Gov. Jeb Bush. In her post as the Georgia Department of Community Health’s interim commissioner, Edwards led a billion agency responsible for health care purchasing, planning and regulation, and improving health outcomes. Programs under her purview included Medicaid, PeachCare for Kids, health care facility regulation, public health and emergency preparedness, and the State Health Benefit Plan. Prior to the interim commissioner appointment, Edwards was chief of staff for the department, serving as principal advisor on all major policy and management issues and initiatives with special emphasis on managed care, health information …
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