Agency problem arises when managers deviate from the goal of maximisation of shareholder wealth by placing their personal goals ahead of the goals of shareholders.

Question

Quizplus · Accepted Answer

This statement accurately describes the agency problem, which is a common issue in corporate finance where managers prioritize their own interests over those of the company's shareholders. The conflict of interest between shareholders and managers can arise due to various reasons such as information asymmetry, moral hazard, and adverse selection.

Agency Problem Arises When Managers Deviate from the Goal of Maximisation