Agency Problem

Agency Problem

The objectives of management may differ from those of the firm’s shareholders (owners). In a large corporation the stock may be so widely held that stockholders cannot even make known their objectives, have less control or influence on management. Often ownership and control are separate, a situation that allows management to act in its own best interest rather than those of the stockholders. We may think management as the agents of the owners. As their objectives differ so conflict between parties arise which creates agency cost of a firm. Ultimately, it causes agency problem in a firm.

Agency Problem