What is the agency relationship between shareholders ( or owners) and Managers ? what are agency...

What is the agency relationship between shareholders ( or owners) and Managers ? what are agency costs here in this relationship? What are the ways agency cost can be reduced ?

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Expert Solution

Agency Relationship Between Shareholders and management - Shareholders is a Principal and management is an agent they hace to work as per there agent on or his behalf.
Shareholder is a owner of the comapny and the management is appointed by the management to run the company oh his behalf.
Agency Cost - It refers to the loss of a firm value as a conflict of interest between shareholder and management.
Managemen wants high perks, incentives they increase the company expense but not increase the efficiency and output of a company.
Agency cost can be reduced by implemented a Incentives scheme, if management is doing a work then only they are applicable for incentive or bonus otherwise not.
Incentives either way of Financial and Non Financial.

I hope this clear your doubt.

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jeff jeffy answered 1 year ago

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