Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 1.5, Problem 1.5ACQ
Summary Introduction

To discuss: The term “agency relationship”.

Introduction:

Agency problem arises due to the likelihood of conflicts of interests between the stockholders and the management of a firm.

Generally, the financial manager takes decisions according to interests of the majority. However, in larger corporations it is difficult to fulfil the wishes of the stockholders.

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When does an agency relationship happen?
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