Principal agent problem

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June 9, 2022 at 8:30 am #658048
Shi2004
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Hello sir this is a theory question on principal and agency problem. The question which of the following is an illustration of the principle agent problem.
The answer is manager avoid debt finance because of lower interest payments to increase their job security.
How is that a principle agent problem??
June 9, 2022 at 9:10 am #658068
John Moffat
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Because doing something simply to increase their own security is not necessarily going to benefit the shareholders.
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