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What is meant by the term "agency problem"?

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What is meant by the term "agency problem"? Why is this important for corporate governance?

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Solution Summary

This solution explains the agency problem and discusses terms with examples from the perspective of a CEO and the shareholders of a company. This solution is 127 words.

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Agents make decisions that affect principals. For instance, agents could be the CEO of a company, and principals are the shareholders.

Agency problems occur when there is a conflict of interest ...

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