Problem:
The recent experience of the U.S. financial sector with the so called subprime crisis and the attendant attempts at financial market reform have centered to some large extent on the behavior of executives in those firms who have had alleged conflict of interest relationships. In financial theory we call this "the agency problem" and have an extensive body of literature and research on the topic.
What precisely is an agency relationship, what potential problems do these relationships cause, what are their costs, and what can firms do to either eliminate or reduce these potential problems and costs?
Please explain in detail.
Please support your response with a minimum of three quality academic and/or industry references.
Examples of acceptable references include:
The Financial Times
The Economist
The Wall Street Journal
Businessweek
Reuters
Marketwatch
BBC
CNBC
The Journal of Finance
Harvard Business Review
Examples of unacceptable references include:
- Wikipedia
- About.com
- Ask.com
- Yahoo Answers
- eHow
- Personal blogs