question archive What are the main reasons that ana agency relationship exists in corporate? what kind of problem can rise rise from it?
What are the main reasons that ana agency relationship exists in corporate? what kind of problem can rise rise from it?
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What are the main reasons that ana agency relationship exists in corporate? what kind of problem can rise rise from it?
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- The main reason why an agency relationship (aka principal-agent) exists is because in larger firms ownership by the shareholders is separate from control by the managers. An agency relationship exists any time that a principal delegates decision making authority to an agent. The main type of agency relationship that concerns finance is the manager as agent and shareholder as principal.
- And the problem that can arise from agency relationship is a conflict of interest inherent in any relationship where one party is expected to act in the best interest of another. The agency problem arises when incentives or motivations present themselves to an agent to not act in the full best interest of a principal. But through regulations or by incentivizing an agent to act in accordance with the principal's best interests, agency problems can be reduced.
