Other
Definitions MMfV
- Course
- Institution
Definitions used in the papers and in the lectures
[Show more]
3 reviews
By: paulinedekievit • 5 year ago
By: manuelfrada • 6 year ago
By: mijkedonkers • 7 year ago
Seller
Followlisasnoeij
Reviews received
Content preview
Lecture 1Agency relationship = a situation in which one individual acts on behalf of another individual and is
supposed to advance the principal’s goals.
Moral hazard problem = ‘the gap’ between effort of the employee and the effort of the
entrepreneur. Arises because 1) providing effort is costly for the agent, monitoring is difficult,
performance measures are noisy signals of the agent’s effort and the agent is risk averse.
Agency costs = any cost that emerges because of having a principal-agent relationship and because of
trying to improve the functioning of this principal-agent relationship.
Management control = are employees implementing the outlined strategy? Internal focus
Strategic control = is our strategy valid, and if not, how should our strategy by changed? External
focus
Management control system = everything that firms can use to induce their employees to act in the
best interest of the firm
Theory = an integration of observations that provides an adequate explanation of human behavior.
Lecture 2
Performance measure = a quantifiable indicator used to assess how well an organization is achieving
the desired objectives.
Sensitivity = The extent to which the expected value of the PM changes with changes in the agent’s
effort. – degree to which the mean of the PM moves in response to an action by the agent.
(additional risk for the agent)
Precision = The extent to which the expected value of the PM is influenced by factors outside of the
control of the manager. (additional risk for the agent) – inverse of the variance of a performance
measure
Verifiability = The extent to which it is ex ante clear how the PM is calculated.
Congruence = The extent to which the PM reflects contributions to overall firm value. > A congruent
PM reflect the consequences of all actions an agent can take to increase firm value. (additional risk
for the principal)
Delegation = The extent to which employees have decision-making authority.
Aggregate PM = Measures that provide (some) information about ‘all’ actions.
Specific PM = Measures that provide (some) information about a subset of actions.
Congruity = To what extend does the PM captures the impact on firm value of the agent’s action.
(most important characteristic in the context of the intertemporal choice problem)
Intertemporal choice problem = The course of action that is best for the short term is not the same
course of action that is the best over the long term.
Lecture 3
Incentive-effect of promotions = If the probability of promotion/reward difference increases, then
this will lead to increased effort.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller lisasnoeij. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.21. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72042 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now