Posted in Finance, Accounting and Economics Terms, Total Reads: 1280
Definition: Agency Problem
Agency problem is a one of a kind problem which arises due to a conflict of interest. Man is selfish by nature and such a problem occurs when an agent who is entrusted with a responsibility towards a principal keeps his own self interest over the interest of the principal whom he is supposed to represent.
Such a problem can never be completely ruled out of a business it is always present to some extent.
The most common form of its occurrence in a business scenario is that the managers have the goal of maximizing shareholder wealth whereas at times they put maximizing their own wealth ahead of their goal.