Question

30. Embodying the concept of manager-stockholder conflicts, what might mangers do with research & development (R&D) to impact the value of their stock options? Is this in the best interests of the investor?

Answer 1

The conflict between the larties in a particular institution can be considered as agency problem. The agency problem is a conflict of interest inherent in any relationship where one party is expected to act in another's best interests. In corporate finance, the agency problem usually refers to a conflict of interest between a company's management and the company's stockholders.

  We can redu e agency problem by avoiding some kind of incentives which may encourage conflicts of interest. The agency problem exists in that scenario because the advisor's compensation is tied to the specific financial products he offers you. So by doing this we can reduce agency problems.

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