Agency problem(redirected from Principal agent problem)
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A situation in which agents of an organization (e.g. the management) use their authority for their own benefit rather than that of the principals (e.g. the shareholders). The agency problem also refers to simple disagreement between agents and principals. For example, a publicly-traded company's board of directors may disagree with shareholders on how to best invest the company's assets. It especially applies when the board wishes to invest in securities that would favor board members' outside interests.
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