Investopedia

Continue to Site »

Agency Costs

Filed Under » , , , , ,
Dictionary Says

Definition of 'Agency Costs'

A type of internal cost that arises from, or must be paid to, an agent acting on behalf of a principal. Agency costs arise because of core problems such as conflicts of interest between shareholders and management. Shareholders wish for management to run the company in a way that increases shareholder value. But management may wish to grow the company in ways that maximize their personal power and wealth that may not be in the best interests of shareholders.
Investopedia Says

Investopedia explains 'Agency Costs'

Some common examples of the principal-agent relationship include: management (agent) and shareholders (principal), or politicians (agent) and voters (principal).

Agency costs are inevitable within an organization whenever the principals are not completely in charge; the costs can usually be best spent on providing proper material incentives (such as performance bonuses and stock options) and moral incentives for agents to properly execute their duties, thereby aligning the interests of principals (owners) and agents.

Articles Of Interest

  1.

    Cash: Can A Company Have Too Much?

    Cash is something companies love to have. But if they are not using it there could be problems.

  2. Earnings: Quality Means Everything

    It's quantity that generates all the hype, but there are more meaningful factors that gauge true performance.

  3. Governance Pays

    Learn about how the way a company keeps its management in check can affect the bottom line.

  4. The Path To Becoming A CEO

    Think you have what it takes to be chief executive? Find out what those at the top have in common.

  5. Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.

  6. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  7. Build A Baby Berkshire

    Get a piece of Warren Buffett's profit by using Form 13F to coattail his picks.

  8. Cash: A Call Option With No Expiration Date

    Cash is generally regarded as a drag on investment returns, but sometimes it may be preferable to hold a substantial cash amount instead of investing it in other assets. This is because having ...

  9. Wall Street’s Glass Ceiling

    It’s tough to boast that there are more female CEOs than ever before when they make up only 4.2% of the total.

  10. Should You Add A Securities License To Your Qualifications?

    Clients love planners who sell securities, but a securities license takes a lot of work. Learn if the stress and study are worth it.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  2. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.

  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center