Which of the following can NOT be a solution to agency problem?
An incentive contract that ties executives’ compensation closely to shareholder benefits.
A concentrated ownership structure that allows shareholders to voice their opinion.
An intervention by an activist that bring about changes that enhance shareholder’s value.
CFO of XYZ Inc. serves as a member of the auditing committee of XYZ Inc.
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The agency problem is a conflict of interest inherent in any relationship where one party is expected to act in another's best interests. In corporate finance, the agency problem usually refers to a conflict of interest between a company's management and the company's stockholders. The manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth even though it is in the manager’s best interest to maximize his own wealth.
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