Agency problem and Corporate governance

a- The company management goal should be to increase shareholders wealth, this goal is

main goal for any company beside maximizing profit or increasing market share.

Shareholder wealth maximization achieved by increasing the share price in the market,

share price increase depend on future cash flow from dividend.

b- There is an agency problem appear in the company, the managers of the company seek to

achieve their own interest rather than shareholders’ interests, the management of the

company do not distribute dividends for long time, secondly the management compensate

themselves from the profit of the company. The company management goal should be to

increase shareholders wealth, this goal is main goal for any company beside maximizing

profit or increasing market share. Shareholder wealth maximization achieved by

increasing the share price in the market, share price increase depend on future cash flow

from dividend.

c- Every firm must take its social responsibility role seriously, the act of the firm is not

ethical , dumping pollutants in the stream will harm environment and society as a whole.

The firm must concern with social responsibility by not acting unethically and do what

best for society. Some firm pay expense or pay money for improving environment,

protecting environment from pollution, and support society in the field of education and

health, this expenditure will decrease the profit, but in the long run the firm will benefits,

because this action will improve firm reputation, which may lead to increase its sale and

market share in the future.

d- The company have not an effective corporate governance structure, because there is an

agency problem. Corporate governance protect and preserves the rights of shareholders,
 and prevent firm management unethical actions or behavior against shareholders’

interests.

Recommendations

1- the company must establish corporate governance structure to protect shareholders right

and oversee management behavior.

2- The company should take into consideration the importance of corporate social

responsibility.

3- The firm management must protect and preserve shareholders’ interests.

4- Managers should be compensating according to share price not according to profit