Definition Of Agency Problem

Agency problem definition a conflict that exists in an organization between those who are in positions of control or trust agents and those whose interests are to be served principals or stakeholders in which actions taken by the agents instead serve their own interests.

Definition of agency problem. 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. What is the agency problem. It is a pervasive problem and exists in practically every organization whether a business church club or government. For example a publicly traded company s board of directors may disagree with shareholders on how to best invest the company s assets.

In general an agency problem in finance usually happens when an agency the management of a financial company does not work in the best interests of the stockholders. The agency problem can be better defined as a conflict taking place when the agents who are entrusted with the responsibility of looking after the interests of the principals chose to use the power or authority for their personal benefits and in corporate finance it can be explained as a conflict of interest taking place between the management of a company and its stockholders. For example a publicly traded company s board of directors may disagree with shareholders on how to best invest the company s assets. The agency problem is a conflict of interest where one party who is naturally motivated by self interest is expected to act in another s best interests.

The agency problem also refers to simple disagreement between agents and principals. The principal. It especially applies when the board wishes to invest in securities that would favor board members outside interests. It especially applies when the board wishes to invest in securities that would favor board members outside interests.