Separation of Ownership and control, and agency costs Assignment

Separation of Ownership and keep back, and execution costs - Assignment ExampleThe management team is responsible for running the business and taking decisions as and when required but submit almost measly claim on profitability. In such organisations, separation of ownership and control is clearly visible. Many authors have described this relationship, in the midst of the shareholders and the management of the firm, as pure agency relationship. This concept will be further discussed in the essay with the help of agency theory.The concept of separating ownership and control was aimed to answer the firms to achieve the sole motto of profit maximisation. This concept held the view that organisations should strike a balance between profit maximisation and development of society, which is corporate governance. In the later section, different theories associated with separation of ownership and control will be analysed to determine the cost of agencies.The concept of separation of o wnership and control was first gaind by Berle and Means in the year 1932. The agency theory explains that the owner (shareholders) of the firm is the principal and the one who shoot the responsibility of running and managing the business (management) is the component. Both the principal and the agent think of their personal gains. The Principal tries to intent the governance system for maximising his utility. In the same way, the agent tries to manage the firm for fulfilling his utility. If utility of two principal and the agent coincides, they both enjoy increment in their individual utility. However, often the utility of the agent differs from that of the principal, and the agent tries to maximise his utility at expense of the principal. To minimise such incidences, principal needs to introduce internal control, which results in an extra cost. Thus, the concept of separation in ownership and control is related to agency cost.For minimising the cost, the agency theory introduc ed different governance to be followed by the company. Often companies