The individual investors do not have the incentive as large institutional investors to keep a check on the management. Introduction: Agency problems: Any type of problem arises only when the opinions of two or more parties are mismatching. The same concept is implied in agency problems. Here, the shareholders/investors have to be considered as principals and the management as an agent. When a manager takes a decision in his favor instead of the firm’s benefit, definitely the agency problem will arise.

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Chapter 1, Problem 12PS

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To analyze: The individual investors do not have the incentive as large institutional investors to keep a check on the management.

Introduction:

Agency problems: Any type of problem arises only when the opinions of two or more parties are mismatching. The same concept is implied in agency problems. Here, the shareholders/investors have to be considered as principals and the management as an agent. When a manager takes a decision in his favor instead of the firm’s benefit, definitely the agency problem will arise.

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