Agency Problem

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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.

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