Agency Conflicts between Inside Owners/Managers and Outside Shareholders

Agency Conflicts
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Agency Conflicts
Conflicts among shareholders and the management of an organization are typically referred to as agency costs. The company's shareholders bear these costs. Augmented company management and activist shareholders engage in agency-related disputes, but the conflicts can be intense, especially for smaller firms. Conflict of interest between managers and the shareholders may arise where there is a possibility of conflicts between lenders and borrowers. After originating the loans, harmful decisions by the borrowers to the lenders may occur. For instance, borrowers may decide upon investing in highly risky projects. To the borrowers, these risky projects may look like options. Possible conflict of interest between the managers and the shareholders may arise when managers decide to fund these risky projects, meaning losing money may be inevitable. ...