The agency problem refers to the possible conflicts of interest between

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The agency problem arises due to the conflict of interest between self-interested managers who act as agents and shareholders of the firm who act as principals. These managers may prioritize their self-interest over the shareholders' interest, leading to actions that may not be in the best interest of the firm or its stakeholders. The principal-agent relationship can be improved by aligning the interests of the agents with those of the principals, and implementing effective monitoring and incentive mechanisms.

The Agency Problem Refers to the Possible Conflicts of Interest