Agency problems
Definition
Agency problems at firms arise when the managers (agents) do not act in the interest of the shareholders (principal).
For example, the CEO may decide to use corporate cash to purchase a private jet instead of distributing an extra-dividend to shareholders. Shareholders do not have full information about what is happening at the company. At the same time, managers can make decisions that benefit themselves instead of the stakeholders (including the shareholders). The corporate inefficiencies that are associated with the conflict of interests between management and shareholders are called agency costs.
About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
