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What are two ways agency costs, resulting from a conflict of interest between the shareholders and...

What are two ways agency costs, resulting from a conflict of interest between the shareholders and managers, can be minimized by the firm?

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Answer #1

Agency Conflict is the conflict of interest arise between owner of company (Shareholders) and Agent (Manager). In company manager act as an agent and work for the owner that is shareholder and maximize the worth of shareholder. Sometime manager ignores shareholder interest and tries to maximize their own benefit. in this case conflict of interest between manager and shareholder arise which is called agency problem.

Ways to minimize agency cost is mention below:

1. Agency issue with regards to managements and shareholder can be minimized by compensating managers with stock options that vest over time at higher prices.

2. Profit sharing between shareholder and manager of company.

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