The relationship between owners and managers in the existence of asymmetric information

Abstract

Separation of ownership from management in enterprises has resulted in many managers are informed of the owners of those companies, or the behavior of both the consequences of the existence of asymmetric information. In these conditions, managers do not always seek to maximize profits, when control of the behavior of managers is a big expense for the owners of the company. Respectively, as the owners are unable to fully supervise the work of its managers, managers often seek to maximize their goals at the expense of the owner. Tis form an asymmetric information creates „principal - agent“ problem, which occurs when the welfare of a person, in our case, the owner, depends on what works manager.

Because of that, in our work, we wanted to explore the reaches of existing theories dealing with this problem and to try to prove that managers do not work in the interest of the owner. Also, we wanted to try to develop a microeconomic model, which will involve various methods of rewarding managers, offer a solution to the principal - agent problem in corporation.

Summarizing the results of our analysis, based on three models that we developed for this study, we concluded that the mechanism of rewarding managers, that his bonus was tied to participation in profits, offers a good way to solve the principal-agent problem, because in a model of „reconcile“ the interests of managers and owners.