Question

what is the positive side of agency costs and where should we seek to balance these costs?

Answer 1

Agency cost incurrs when principle (i.e. Shareholders) tries to monitor or restrict the actions of agents (Managers of the company), they can use agency cost to takeover the controller-ship.

Positive side for the same is Monitoring cost (appointment of Board by shareholders and incurring cost towards them), Bonding cost and residual losses etc.

Only way to reduce these costs is to -

1. Building trusteeship with the management appointed by shareholders

2. Pointing inefficiencies and correcting the same.

3. Reducing dissatisfactions and disruptions etc.