1. Explain agency relationship and agency costs to the owners of Stevens Textile Co. 2. Suppose Stevens Textile company is very successful and the founders’ cash out most of their stock and turn the company over to an elected board of directors. Neither the founders nor any other stockholders own a controlling interest (this is the situation in most public companies). List six potential managerial behaviors that can harm a firm’s value. The principals and shareholder interests


Agency costs are a specific type of internal business expense incurred by an agent acting on behalf of a principal (Ali, 2020). Core mistakes, grievances and turmoil such as conflicts of interest between management and shareholders often result in placement costs. Agents receive a commission. In short, the relationship between shareholders and executives is called principal-agent relationship (Hatami & Khatibi, 2022). In this case, the shareholders are the customers and the executives are the representatives. However, other related parties with considerable power dynamics can also be described as principal-agent relationships. For example, agency costs may arise from interactions between politicians (principals) and voters (agents). Voters incur agency costs when candidates for office promise to pass certain laws but then break those commitments after winning the election. Continued…

1. Explain agency relationship and agency costs to the owners of Stevens Textile Co. 2. Suppose Stevens Textile company is very successful and the founders’ cash out most of their stock and turn the company over to an elected board of directors. Neither the founders nor any other stockholders own a controlling interest (this is the situation in most public companies). List six potential managerial behaviors that can harm a firm’s value. The principals and shareholder interests


Agency costs are a specific type of internal business expense incurred by an agent acting on behalf of a principal (Ali, 2020). Core mistakes, grievances and turmoil such as conflicts of interest between management and shareholders often result in placement costs. Agents receive a commission. In short, the relationship between shareholders and executives is called principal-agent relationship (Hatami & Khatibi, 2022). In this case, the shareholders are the customers and the executives are the representatives. However, other related parties with considerable power dynamics can also be described as principal-agent relationships. For example, agency costs may arise from interactions between politicians (principals) and voters (agents). Voters incur agency costs when candidates for office promise to pass certain laws but then break those commitments after winning the election. Continued…

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