To discuss: The meaning of agency problems and way wherein an agency problem provides increase in an agency cost.
Introduction:
An authorized person who acts on the behalf of another person or investor to buy or sell securities is termed as agent. The person who appoints the agent is termed as principal.
To discuss: The way wherein the corporate governance structure helps to avoid agency problems.
Introduction:
The way wherein the stakeholders of a company control the affairs of the firm to guarantee their return on investment is termed as corporate governance.
The managers of the firm are appointed to work in the best interest of the investors. In a corporation, the control of an organizational structure and separation of ownership will give rise to conflicting interest. Every managers face ethical dilemma of whose interest to serve their own or the investors to whom he/she is responsible. This agency conflict takes place when there are different stakeholders in an organization because everyone will have their own interests.
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Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
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