Question

What is agency problem? Explain.

Answer 1

Agency problem is the conflict of interest issue arising when one party is expected to work in another parties interest.

For example - in a Corporation their are various stakeholders including shareholders and management. Stakeholders provide capital for the business and are owners to it. Management work for them. But if the managers do not work in the best interest of shareholders for example due to benefits like higher salaries for choosing risky projects. There is agency problem

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