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Relationship between the state and subsidized companies: Agency problem

Journal: International Journal of Advanced Multidisciplinary Research and Review (Vol.4, No. 6)

Publication Date:

Authors : ;

Page : 1-26

Keywords : companies subsidized by the government; conflict of interests; political risk; agent problem; value for the state; value for the company; maximum value; cash flow.;

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This paper deals with the problem of relationship between the state and companies, which activity is subsidized by the government, given the strong influence of the state on the companies and a possibility of the state interference in the company activity. In such cases there is a conflict of interests between the state and company, i.e. depending on the subsidy level and the level of political risk for the company in the relationship due to the possibility of expropriation of funds from the cash flow controlled by company. In this case, value (utility)for one of the parties may be positive in the relationship, while for another one it may be negative. This paper deals with all possible cases of subsidy levels and expropriation parameter resulting in positive value for each party. It also deals with the issue: what conditions of subsidy level and expropriation parameter, as well as the level of efforts made by company result in value (utility) gain for each party.

Last modified: 2016-07-09 22:16:26