Agency problem arises when managers deviate from the goal of maximization of shareholder wealth by placing their personal goals ahead of the goals of shareholders.

Question

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Agency problem is a well-known phenomenon in corporate finance where managers act in their own interest or deviate from maximizing shareholder wealth for their own gain, leading to a conflict of interest between managers and shareholders. As a result, shareholders may suffer and the overall corporate performance could be negatively affected.

Agency Problem Arises When Managers Deviate from the Goal of Maximization