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Agency problem and agency cost

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Briefly explain the term "agency costs" as it related to a corporation.
How can agency problems be minimized when a company uses debt?

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Solution Summary

This solution briefly explains the term agency cost in a corporation, as well as the agency problem associated with debt and the company creditors.

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Briefly explain the term "agency costs" as related to a corporation?

A large corporation has owners (stockholders) and managers (hired executives). The agency cost (also called the agency problem or agency conflict) is either a direct or indirect expense, which is borne by the principal (owner) as a result of having delegated authority to an agent (manager). An agency problem can occur whenever owners (stockholders) authorize someone else to act on their behalf ...

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