Finance hw 3. What is an agency relationship?.Accounting, Finance,SPSS

FINANCE HW #3
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What is an agency relationship? When you first begin operations, assuming you are the only employee and only your money is invested in the business, would any agency conflicts exist? Explain your answer.
Agency relationship arises because of the association between an agent and principal, where the agents carry tasks on behalf of the principal, but conflicts of interests may arise with the agent failing to prioritize the principal’s best interests. Yes, agency conflicts are likely to arise as there is no separation of the ownership and management. In companies where there is separation between the ownership of a company and its management, the shareholders (owners) are the principals and the managers are the agents.
Suppose your company raises funds from outside lenders. What type of agency costs might occur? How might lenders mitigate the agency costs?
Agency costs occur because of the conflicts between shareholders and the company's managers. When there is lending to the firm there are now three parties namely the owners, managers and lenders. Conflicts between the lenders and shareholders where the managers need to consider the interests of these parties through transferring wealth to the shareholders and interests to the lenders. Mitigating the agency costs may require performance-based compensation that motivates the managers to act in the best interests of the principals. Performance-based compensation maybe monetary or non-monetary incentives and even when the incentives increase the costs they are beneficial. Another way to mitigate the agency costs is signing agreements where the loan interests are paid before other distributions.
What is corporate governance? List five corporate governance provisions that are internal to a firm and are under its control.
Corporate governance reflects the set of principles, policies and actions that regulat...