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Agency cost refers to the expenses incurred due to conflicts of interest between stakeholders in a company, primarily between shareholders and management. These costs arise when management makes decisions that benefit themselves rather than the shareholders, potentially leading to inefficiencies and reduced shareholder value. Examples include excessive executive compensation or pursuing projects that serve management's interests over those of the owners. Reducing agency costs often involves implementing better governance practices and incentive structures to align the interests of both parties.

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2w ago

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