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Agency problem

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Definition of Agency problem

Agency Problem Image 1

Agency problem

Conflicts of interest among stockholders, bondholders, and managers.



Related Terms:

agency problems

Conflicts of interest between the firm’s owners and managers.


Agency

A grouping of sales producers according to region. Compare with Branch.


Agency bank

A form of organization commonly used by foreign banks to enter the U.S. market. An agency
bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.


Agency basis

A means of compensating the broker of a program trade solely on the basis of commission
established through bids submitted by various brokerage firms. agency incentive arrangement. A means of
compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.


Agency cost view

The argument that specifies that the various agency costs create a complex environment in
which total agency costs are at a minimum with some, but less than 100%, debt financing.



Agency costs

The incremental costs of having an agent make decisions for a principal.


Agency pass-throughs

Mortgage pass-through securities whose principal and interest payments are
guaranteed by government agencies, such as the Government National Mortgage Association ("Ginnie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie Mae").


Agency Problem Image 2

Agency theory

The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of
anther person, a principal.


Asset substitution problem

Arises when the stockholders substitute riskier assets for the firm's existing
assets and expropriate value from the debtholders.


Federal agency securities

Securities issued by corporations and agencies created by the U.S. government,
such as the Federal Home Loan Bank Board and Ginnie Mae.


Fiscal agency agreement

An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as an
agent of the borrower.


Replacement-chain problem

Idea that future replacement decisions must be taken into account in selecting
among projects.


Underinvestment problem

The mirror image of the asset substitution problem, wherein stockholders refuse
to invest in low-risk assets to avoid shifting wealth from themselves to the debtholders.
Underlying
The "something" that the parties agree to exchange in a derivative contract.



 

 

 

 

 

 

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