Agency Relationship and Costs: The relationship between the owner of the company as a party who lavishes authority (principal) and management as the beneficiary authority (agent) is called the principal-agent relationship. Owners as a principal gives authority to the management to run day-to-day operations, and management as a recipient of the authority are expected to act in accordance with the wishes of the owner of the company.
Because ownership of a large company can be spread among many shareholders, it means that shareholders can not monitor regularly and effectively running the company operations. Agency problems arise because of conflict of interest between principal and agent. The costs incurred by the conflict of interest is called agency costs.
Agency costs can be monitoring costs and the cost to control and monitor the activities of the company's operations as a result of information that is not balanced between the owners and management, and residual losses, ie losses suffered by the owner of the company resulting from the management of deviant behavior.
[Business Blog SEO | Agency Relationship and Costs]
Because ownership of a large company can be spread among many shareholders, it means that shareholders can not monitor regularly and effectively running the company operations. Agency problems arise because of conflict of interest between principal and agent. The costs incurred by the conflict of interest is called agency costs.
Agency costs can be monitoring costs and the cost to control and monitor the activities of the company's operations as a result of information that is not balanced between the owners and management, and residual losses, ie losses suffered by the owner of the company resulting from the management of deviant behavior.
[Business Blog SEO | Agency Relationship and Costs]
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