Principal-agent Issues

Principal-agent problem is relatively new issue mainly in large corporations. It arises due to the separation of ownership and management. Basic financial objective of any company is to maximise market value, but the interests of owners and managers are quite different. Shareholders like a high profit and high share price, but managers pursue their own interests like prestige, income, pleasant work and other benefits. Both of the parties have other information-managers are generally better informed, but owners bear risk of their decisions. Although the owners have information about company's results, they are not able to measure the performance and effort of their managers. The aim of this article is to refer to general principal-agent issues.