Explain agency conflict and how agency costs can be reduced.
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1. Explain agency conflict and how agency costs can be reduced.
According to finance theory, the goal of economic organizations is to advance shareholders' wealth. The agency conflict or problem is that the corporations have become diffused, with few organizations being owned by their managers. This separation of ownership and management has created issues (problems and/or conflict) of the relationship between owners and managers. This set up a situation where managers can substitute self-interest for shareholder interests because of the difference of information between the manager and shareholders, and the manager often acts as the voice of the shareholder, as they are given more leverage in this way "to act as cross-purposes with advancements of shareholder needs". ...
Explains agency conflict and how agency costs can be reduced.