principal agent problem

agent means the manager of the company, manager and shareholder have different interests. Shareholders hope to gain the highest return and take more risk, while manager don't want to take the risk as it possible results in losing job. Manager would not take the risk shareholder would like to. That's the agent problem.

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When the shareholders have to incur the expense of ensuring that managers act in the interest of the shareholders.That is the description of principal-agent problem.

The solutions of the principal-agent problem:
Corporate goverance regulation
Link managerial rewards to shareholder wealth improvement
Selling shares and the takeover threat