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Corporate Governance (An Agency Relationship (Problems (Principal and…

- - - - Managers (Agents)
        
        Create
        
        Agency Relationship
  - - - Principals do not know beforehand which agents will or will not act opportunistically
      - principals establish governance and control mechanisms to prevent managerial opportunism
- - - - :star:Use of salary, bonuses and long-term incentives to align managers interest with shareholders interests
- - - - :star:Shareholder purchase stock, which entitles residual claimants from the firms operations after paying expenses
        :star:reduce risk by investing in several companies
        :star:professional manager are contracted to provide decision making
    - - :star:Risk bearing by shareholders
        :star:strategy development and decision making by managers