BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -An agency problem is a conflict of interest inherent in any relationship where one party is expected to act in another’s best interests. In corporate finance, an agency problem usually refers to a conflict of interest between a company’s management and the company’s stockholders.

Detailed explanation-2: -The conflict of interest between managers and stockholders is known as the agency problem. In general, the agency problem takes place when the agents do not act in the best interests of principals.

Detailed explanation-3: -Agency costs are the costs of disagreement between shareholders and business managers. Shareholders and managers often find themselves in disagreement about the best moves a company can make, and this is known as the “agency problem.” Costs stemming from agency problems are agency costs.

Detailed explanation-4: -Examples of Agency Problems Many stockholders lost millions as the value of Enron shares plummeted. Real Estate Bubble and Goldman Sachs-When financial analysts invest against the interests of their clients, it’s another agency problem.

Detailed explanation-5: -Shareholders and managers can work in a hierarchy in which principals attempt to control the actions of agents to achieve the wealth objective. Alternatively, shareholders and managers can work together as a cooperative team in which shareholders provide financial capital and managers provide human capital.