Answer to Question #66410 in Financial Math for ARIOKOT JOSEPHINE

Question

b) How can the overall goal of wealth maximization be maintained in view of the agency problem?

Answer 1

The agency problem is a conflict of interest inherent in any relationship where one party is expected to act in another's best interests. In corporate finance, the agency problem usually refers to a conflict of interest between a company's management and the company's stockholders. The manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth even though it is in the manager’s best interest to maximize his own wealth.

Reference:
https://www.investopedia.com/terms/a/agencyproblem.asp#ixzz4bc8Gu8d6