CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
An agency can be defined as a legal relationship that exists between two parties, when one called the agent is employed by another called the principal to bring the principal into a legal relationship with the third party. Agent is a person who is given the authority by the principal to enter into a contract on his behalf. The agent has the power to make a binding contract between his principal and a third party without himself becoming a party to the contract. An agent is someone who brings another person called the principal into contractual relationship with third parties. Therefore, agency theory provides the framework for discussing the relationship[s that exists between the various interest groups in an organization.
INTRODUCTION
1.1 Background to the Study
An agency can be defined as a legal relationship that exists between two parties, when one called the agent is employed by another called the principal to bring the principal into a legal relationship with the third party. Agent is a person who is given the authority by the principal to enter into a contract on his behalf. The agent has the power to make a binding contract between his principal and a third party without himself becoming a party to the contract. An agent is someone who brings another person called the principal into contractual relationship with third parties. Therefore, agency theory provides the framework for discussing the relationship[s that exists between the various interest groups in an organization.
It views the firm as a composite unit consisting of separate interest groups. Each interest group advocates it own interest and ensures it stands at an advantageous position in relation to the firm. The theory brings out a clear exposition of the actions of some managers who are not in shareholders and maximization objective is therefore pursued. Unfortunately the agent who suppose to uphold the principle of fiduciary duty a duty which includes the avoidance of conflict of interest and not to take secret project, secret reward or secret commission or a bride, now ravel in self-interest pursuer putting in place management that services most a time the self-interest that seem to be their paramount objectives as against the over all objective of the firm. Thereby having goal divergent as against goal congruence.
It is agreed that perhaps there is no more important area of human activity them managing, for it is the basic task of all managers (Agents) at all levels and in all thirds of enterprises to design and maintain an environment in which individuals working together in groups can accomplished selected missions and objectives. To other works, managers are charged with responsibility of taking actions that will make it possible for individual to make their best contributions to group objectives.
One of these responsibilities is enthronement of internal control system, which if well managed will enhance shareholders wealth maximization.
It is agreed that perhaps there is no more important area of human activity them managing, for it is the basic task of all managers (Agents) at all levels and in all thirds of enterprises to design and maintain an environment in which individuals working together in groups can accomplished selected missions and objectives. To other works, managers are charged with responsibility of taking actions that will make it possible for individual to make their best contributions to group objectives.
One of these responsibilities is enthronement of internal control system, which if well managed will enhance shareholders wealth maximization.
Principal
A principal is the person who employs another person called, agent to act on his behalf. A principal contracting through an agent must have contractual capacity.
A principal is” a person who, being sui juris, that is, of legal capacity, employ some one else to do an act which a he or she is competent himself to do.
1.2 Statement
of the Problem
An agency
theory provides the framework for discussing the relationships that exist
between the various interest groups in an organization. The theory brings out
clear exposition of the actions of some managers which are not in consonance
with the actions they were to take, assuming shareholders wealth maximization objectives
is pursued.
As a result of these observation and experiences the
author of this project has undertaken this research to find out how agency
relationships can impact positively on the management control system so as to
ensure shareholders wealth maximization
1.3 Objectives
of the Study
The general objectives of this study is to ascertain the implications of Agency
relationships on management control systems in small and
medium scale Business in Cross River State of Nigeria.
medium scale Business in Cross River State of Nigeria.
1. To
ascertain the implications of agency re1ationships on business in Cross River
State.
2. To
find out whether management control system will improve Agency relationships on
the physical security over the assets of the organization in Cross River State
of Nigeria.
3. To
ascertain the implications of agency relationships on adequacy of documentation
and record keeping of organizations on Cross River State of Nigeria.
4. To
ascertain the implication of agency relationships on management overrides in
organizations in Cross River State of Nigeria.
1.4 Research Questions
Research Question I: What are the implications of agency relationships on the effectiveness of
segregation of duties in small and medium scale business in Cross River State
of Nigeria.
Research Question II: What are the implications of agency relationships on
physical security over assets of small and medium scale in Cross Rivers State
of Nigeria.
Research Question III: What are the implications of agency relationships on
the adequacy of documentation and record keeping in small and medium scale
organisation in Cross River State of Nigeria.
Research Question IV:
What are the implications of agency relationships
on management overrides in small and medium scale business in Cross River
State of Nigeria.
1.5 Hypotheses
of the Study
Based on the objectives of the study as stated above
and for the purpose of providing answers to the questions raised, the following
hypothesis have been formulated.
Three null hypotheses shall be tested against three
(3) alternative hypotheses to ascertain the implication or effect of Agency
relationship on the operations of SMEs in the Abi Local Government Area of
Cross River State.
Ho1 Agency relationships do not make for effective
segregation of
duties in small and medium scale business in Cross River State of
Nigeria.
duties in small and medium scale business in Cross River State of
Nigeria.
Ho2: Agency relationships do not have any significant
effect on physical security over the assets of small and medium scale business
in Cross River State of Nigeria.
Ho3: Agency relationships have no significant effect on
documentation and record keeping in small and medium scale business in Cross
River State of Nigeria.
Ho4: Agency relationships have no significant effects on
management overrides in small and medium scale business In Cross River State of
Nigeria.
1.6 Significance
of the Study
The study on empirical implication of Agency
theory and their impact on management control systems is a very important
study. The result of this study will benefit all categories of stakeholders
such as the shareholders, management, employees investors, creditors host
community, supplier, government and the consumers.
However, the followings specific benefits will be
derived from this
study.
study.
- It
will help minimizing Agency cost. –
- The
study could be used by other researchers as a reference material.
- It
will lead to shareholders wealth maximization.
- It
will help in minimizing conflict of interest between Agent and their
principals.
1.7
Scope of Study
The scope of this study covers small and medium scale
enterprise in Cross River State of Nigeria
1.9 Limitation of the Study
No limitations have been identified in this study.