Agency costs are best defined as:
Question
Agency costs are best defined as:
Solution
Agency costs are defined as the costs incurred due to the conflict of interest between stakeholders, such as shareholders and management, in a corporation. These costs arise due to the separation of ownership and control in a corporation. They include direct costs such as management compensation and the cost of implementing measures to monitor and control such conflicts, as well as indirect costs such as the potential loss of value to the firm due to decisions that benefit management at the expense of shareholders.
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