Briefly explain the term "agency costs" as it related to a corporation.
How can agency problems be minimized when a company uses debt?
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 ...
This solution briefly explains the term agency cost in a corporation, as well as the agency problem associated with debt and the company creditors.