(Agency problem) Code (bus 203 )
Download as PPTX, PDF0 likes119 views
The document discusses the agency problem and how it arises in different contexts when people entrusted to act on behalf of others instead act in their own self-interest. It defines agency problem as a conflict that arises when agents use their power for personal gain rather than the benefit of the principals. Examples given include lawyers acting for clients, managers for shareholders, and employees for employers. The document explains that agents are naturally motivated by self-interest which may differ from the principals' interests. It suggests some ways to solve agency problems, such as through performance-based compensation, direct shareholder influence, and threats of firing or takeovers.
More Related Content
Similar to (Agency problem) Code (bus 203 ) (20)
(Agency problem) Code (bus 203 )
- 1. Course Title: Financial management Presentation topic : Agency Problem Course code: BUS – 203 Green Business School
- 2. Prepared to Course Instructor: Designation: Lecturer of Subject: Financial management Prepared By Name : Solyman Hossain ID No: Section : Department :
- 3. Agency Problem Defination: A conflict arising when people. (the agents) entrusted to look after the interests of others (the principals) use the authority or power for their own benefit instead.
- 4. Agency problems arise in a variety of different contexts. Example o A lawyer is meant to act in the best interest of his or her client. o Managers act on behalf of shareholders. o Employees work for their employers. o Politicians represent their voters and so on
- 5. Explaination The problem is that the agent who is supposed to make the decisions that would best serve the principal is naturally motivated by self interest, and the agent's own best interests may differ from the principal's best interests.
- 6. Solving Agency Problem The manager can be motivated to act in the shareholders' best interests through incentives, Such as: Performance-based compensation. Direct influence by shareholders. The threat of firing. The threat of takeovers.