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"Mercados, instituciones y fricciones" (Information Asymmetry…
"Mercados, instituciones y fricciones"
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Risk-Shifting Problem
Risk shifting also occurs when a company changes from offering employees a defined benefit plan to offering a defined contribution plan. In this case, the risk associated with pensions has shifted from the company to its employees.
Risk shifting is common in the financial world, where certain parties are willing to take on others' risk for a fee.
Risk shifting has many connotations, the most common being the tendency of a company or financial institution facing financial distress to take on excessive risk.
Insurance, for instance, transfers the risk of a loss from the policyholder to the insurer.
Agency Problem
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.
Agency problems are common in fiduciary relationships, such as between trustees and beneficiaries; board members and shareholders; and lawyers and clients.
The agency problem usually refers to a conflict of interest between a company's management and the company's stockholders.
Underinvestment Problem
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An underinvestment problem is an agency problem between shareholders and debt holders where a leveraged company foregoes valuable investment opportunities because debt holders would capture a portion of the benefits of the project, leaving insufficient returns to shareholders.
There was an underinvestment problem that we had to deal with,but it was nothing that we could not handle and we knew we would take care of it.