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Problems can arise in a business relationship when one person delegates decision-making authority to another. The principal is the person delegating authority, and the agent is the person to whom the authority is delegated. |
Managers and shareholders may have different goals. They may also have different attitudes towards risk.
Information asymmetry. Managers almost always have more information than shareholders. Thus, it is difficult for shareholders to measure managers' performance or to hold them accountable for their performance.
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