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Question In your words describe what agency problem and what causes it? (5 marks)

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In your words describe what agency problem and what causes it?

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Answer #1

Agency refers to conflict of interest that occurs when agents don't act in best interest of principal.In other words,agency problems refers to a situation in which agents use their authority for their own benefit rather than that of principal.

The main reason of existing agency problem is when the agents personally gains by not acting in the principal's best interest.You can also say that incentives and remuneration paid to agents are not sufficient to encourage them to act in best in of principals.

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