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agency problem assignment 19-5-2010 - agency problem...

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agency problem Conflict arising when people (the agents ) entrusted to look after the interests of others (the principals ) use the authority or power (given to them, directly or indirectly, by the principals) for their own benefit instead. It is a pervasive problem and exists in practically every organization whether a business , church, club, or government . Organizations try to solve it by instituting measures such as tough screening processes, incentives for good behavior and punishments for bad behavior, watchdog bodies, and so on but no organization can remedy it 100 percent because the costs of doing so sooner or later outweigh the worth of the results . Also called principal- agent problem or principal-agency problem . A conflict of interest arising between creditors, shareholders and management because of differing goals. For example, an agency problem exists when management and stockholders have conflicting ideas on how the company should be run. The Agency Problem is one that is currently being faced by numerous major corporations all across the globe today. This problem is also known as the Principal-Agent Problem in some cases. Many organizations are currently facing this particular problem due to the simple fact that many organizations have a very similar structure which normally would include the Principal and the Agent.
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