Financial Planning and Agency Conflicts

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From the scenario, cite your forecasting conclusions that support TFC’s decision to expand to the West Coast market. Speculate as to whether or not the agency conflict discussed in the scenario could become a roadblock to your conclusions. Provide a rationale for your response.

•* From the mini case, recommend two (2) desired characteristics of a board of directors. Provide support for your response, citing the ways in which these characteristics usually lead to effective corporate governance.

“Agency conflicts can distort a firm’s investment decisions if all ownership and control interests do not reside in one person (Jensen and Meckling 1976).  Although agency costs can affect both large and small firms, the initial separation between ownership and control typically occurs when a firm is still small.  It is the owner of a closely-held small firm who will assess whether the benefits of expansion outweigh the agency costs growth might create.  Then, once ownership and control are separate, the entrepreneur must establish planning and control systems, to reduce the costs of agency conflicts”..

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