Agency Relationship and Corporate Governance Case Study 2022

Running head: FINANCIAL MANAGEMENT
CASE STUDY FOR GIVEN SCENARIO
[Enter Name of the Student:]
[Enter Name of the University:]
[Author Note:]

AGENCY RELATIONSHIP AND CORPORATE GOVERNANCE1
Definition of agency relationship?
The bond associated between the agency and the client or any other agency are mainly
dependent upon the trust and confidence between the two. The principal in the business gives
legal authority to the person to work on behalf of the higher authority and negotiate business
with a third party organization (Enfield, 2013). The agent needs to understand all the roles and
responsibilities of the principal in order to work for the principal. The agency relationship plays
an important role in future strategies, objectives and plan execution.
Any case of agency conflict if only one employee is there and the money
invested is of the employee, during the beginning of operations -
From the given case scenario, the business is to be started initially in the student board of
the university and being the only employee it is quite tough to enhance the business. Agency
conflict occurs whenever one party is acting in benefit to another party. In this scenario, agency
conflict is not expected to occur as because only one employee will engage in the business with
the employees own capital and therefore there exist no case of conflict between the agent and the
principal (Lei, Lin & Wei, 2013). But conflicts with the customers might occur which will be
directly handled by the employee himself.
Occurrence of agency costs when fund raised from external lenders -
Agency costs occur when a dispute occurs between an agent and the principal and due to
that internal costs are incurred. If an agent wants to work with the sole aim of raising someone’s
wealth or power and not the shareholders’ value, agent cost are raised. There are three types of
agent cost and in this given scenario, bonding and monitoring costs might arise.