The corporate managers and stockholders relationship: the moral hazard issue, case of Moroccan listed companies

This paper deals with the moral hazard problem associated with the behavior of corporate managers. The stockholders (shareholders) cannot control ex ante the managers, because the latter’s action is unobservable to the former, and the stockholders cannot oblige the managers to choose an action which is effective and benefit both parties. The stockholders may not modify the impact of action taken by managers if and only if they decide to condition the action payment to the final observable income. In the specific context of emerging markets listed companies in where the level of opacity and the inefficiency to monitor are very high, the revelation principle does not play correctly. Therefore, it is not interesting to the Agent to show his true type. In this Paper we will specifically deal with this type of problem within the framework of companies listed in the Casablanca Stock Exchange. Our approach consists to show the moral hazard issue existing between two parties: the stockholders (i.e., uninformed “Principal”) and the manager namely the Chief Executive Officer (i.e., informed “Agent”).